After his fall inflation V Eurozone from 10.6% in October to 6.9% in March, his monitoring data indicator fix a further constraint. Industrial prices and other indicators suggest that core inflation (5.7% yoy in March) is also close to its peak. This will pave the way for headline inflation to reach 2.5% by the end of the year. While the road there is likely to remain bumpy, inflation fell faster than expected in January and March and slower in February. However, in general, prices for non-energy goods change more slowly. The energy component, which was the most important factor in last year’s inflationary explosion, is now weakening. Unlike the main index, core inflation has not eased yet. Prices for food, alcohol and cigarettes also continued to rise rapidly.

Since December, they have replaced energy as the main driver of headline inflation. For the main components of the index, it usually takes some time for companies to fully move to the next level. cost increases to their clients. Last summer’s drought and recent crop failures in some countries have also pushed up food prices. But after the current cost-passing on consumers, the pressure will be softer. Many cost indicators, such as supply chain pressures and commodity prices, have declined since last fall, continuing to decline from previous eurozone inflation monitors a month ago. And while wages are likely to rise relatively quickly in 2023, partly to catch up with inflation, we do not foresee a dynamic wage-price spiral.

However, the current pressure on wages will likely prevent inflation from falling to 2% in 2024. What’s more, Europeans still have high purchasing power as they have not yet begun to cash out their exorbitant savings accumulated since the third quarter of last year during the crisis. coronavirus crisis. If consumers increase their spending aggressively, which we currently do not expect, this could boost nominal economic momentum and inflation. We are still waiting for her. ECB raise interest rates by 25 basis points in May and June.

*Economist at Berenberg Bank.