Preliminary data from Eurostat, released on Wednesday, indicated that the annual consumer price inflation rate in the Eurozone for March 2024 decreased to 2.4 percent, which was lower than the anticipated 2.6 percent and represented a four-month low. This decline in inflation has heightened expectations of monetary policy easing by the European Central Bank in the coming months.
Euro area #inflation expected to be 2.4% in March 2024, down from 2.6% in February. Components: services +4.0%, food, alcohol & tobacco +2.7%, other goods +1.1%, energy ‑1.8% – flash estimate https://t.co/XV5xxaizCB pic.twitter.com/97f83o23S2
— EU_Eurostat (@EU_Eurostat) April 3, 2024
The data revealed that services maintained the highest annual rate in March at 4.0 percent, remaining unchanged from February. The annual rates for food, alcohol, and tobacco decreased to 2.7 percent from 3.9 percent in February. Similarly, the annual rate for non-energy industrial goods dropped to 1.1 percent from 1.6 percent in February. On the other hand, the annual rate for energy improved to -1.8 percent from -3.7 percent in February.
As a result of these developments, the market now expects four interest rate cuts by the European Central Bank by the end of 2024, with the first one anticipated to occur in June.
In terms of annual inflation rates among Eurozone members, Croatia (4.9 percent), Austria (4.2 percent), Estonia (4.1 percent), and Belgium (3.8 percent) experienced the highest rates. Conversely, Lithuania (0.3 percent), Finland (0.7 percent), Latvia (1 percent), and Italy (1.3 percent) had the lowest rates.
Additionally, the core inflation rate, which excludes volatile food and energy items, declined from 3.1 percent to 2.9 percent. This decrease brought the core inflation rate to a two-year low.
Read more: Eurozone inflation posts 2.9 percent, hitting two-year low
Inflation data supports expected ECB rate cut in June
The most recent inflation data aligns with the expectations of an interest rate cut by the European Central Bank (ECB) in June.
Currently, the interest rate market fully reflects the anticipation of four rate cuts by the ECB by the end of 2024, with the first one expected to take place in June.
ECB President Christine Lagarde’s recent public statements have emphasized the expectation of ongoing decline in inflation within the Eurozone. However, she has also emphasized the importance of ECB decisions being dependent on data and determined on a meeting-by-meeting basis.
Market reactions
During Wednesday’s trading session, the euro experienced a slight depreciation against the US dollar and remained below the 1.0780 levels. This development reflects the expectations of investors that the European Central Bank (ECB) will be more inclined to implement rate cuts in June compared to the Federal Reserve.
The German Bund, a benchmark government bond, maintained a yield of 2.4 percent, consistent with the closing levels from the previous day.
In European stock markets, there were efforts to recover from the negative performance of the previous day. The DAX 40 index in Frankfurt rose by 0.5 percent, while both the CAC 40 in France and the IBEX 35 in Spain increased by 0.3 percent. However, the Euro Stoxx 600 index showed a more modest advancement, rising only by 0.1 percent.
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