Euro-area inflation has eased further towards the European Central Bank (ECB) target of 2 per cent – which also happens to be the target of the Bank of England (BoE) for the UK – as officials weigh whether to continue lowering interest rates.
Consumer prices rose 2.2 per cent from a year ago in March down from 2.3 per cent in February, Eurostat said last week. That matches the median estimate in a Bloomberg survey of economists.
Services inflation, a particular focus for policy makers, moderated to 3.4 per cent from 3.7 per cent, extending a retreat that began in February. Underlying price pressures, meanwhile, slowed a little more than anticipated to 2.4 per cent.
The ECB will decide whether to reduce borrowing costs for a seventh time since June, with officials now knowing the tariff that Trump has put on the European Union and the affect it would have on prices. Markets pared bets on the extent of further easing this year after Bloomberg reported that several policymakers are wavering on whether to cut again. Investors now see a 70 per cent chance of another move on April 17, down from 85 per cent.
The outlook may be clearer shortly now that Trump has made his main tariff announcement, with the ECB also having to assess what a surge in European military spending and a German infrastructure-investment drive will mean for the 20-nation eurozone economy. Bloomberg Economics said there is a case to carry through with a rate cut this month.
“The big picture is one of inflation on track to reach 2 per cent, underlying inflation seemingly declining faster than expected and interest rates approaching neutral territory,” Bloomberg’s chief European economist Jamie Rush said.
Bloomberg’s view seemed to be that the ECB would pause to take stock in April, as it appeared some officials would prefer. Falling services inflation, big tariffs that has been put on autos and any possibility of further tariffs mean a cut is becoming much more likely.
ECB President Christine Lagarde, recently said that the US levy of 25 per cent on imports would lower growth in the bloc by about 0.3 of a percentage point in the first year, increasing later due to retaliation. The effect on inflation would be far less certain, though in the near term, a weaker euro exchange rate could contribute to an acceleration of about half a percentage point in price growth, she said.
Not all at the ECB agree, with some including France’s Francois Villeroy de Galhau playing down the inflationary impact of tariffs and fretting more about the hit to gross domestic product (GDP).
Most policymakers have been non-committal with Olli Rehn of Finland reinforcing that stand. “If the data verifies the baseline and indicates that to reach our goal of 2 per cent symmetric inflation target over the medium term, the right reaction in monetary policy should be to cut in April, we should indeed do so,” he told Politico, according to a transcript on his central bank’s website. “But if data indicates something else, then we would pause.” The central bank’s latest quarterly projections foresee a sustainable return to its price goal in early 2026. That forecast rests on workers’ pay rises continuing to abate, despite the region’s tight labour market. A separate release from Eurostat showed unemployment fell to a record low 6.1 per cent.
The latest consumer price data “reinforces the disinflation process we’re in, which is getting closer and closer to the 2 per cent price-stability target”, Bank of Spain governor Jose Luis Escriva said. (The writer is our foreign correspondent based in the UK)
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