People walk in the streets of Montmartre, Paris, France, on April 23, 2024.
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Price increases in the euro area remained stable at 2.4% in April, while the economy grew again in the first quarter, according to flash figures published on Tuesday.
Overall inflation of 2.4% was in line with the forecast of economists polled by Reuters. On a monthly basis, inflation was 0.6%.
It is the seventh month in a row that the nominal interest rate is below 3%, despite a slight recovery in interest rates in December due to energy prices.
Core inflation, which excludes energy, food, alcohol and tobacco, fell to 2.7% from 2.9% in March. The impact of a lower annual energy price continued to moderate and amounted to -0.6%, compared to -1.8% in March.
Price increases in the services sector, a key observer for the European Central Bank, cooled from 4% to 3.7%.
Gross domestic product rose 0.3% in the first three months of the year, slightly better than economists' consensus expectations. GDP for the fourth quarter of 2023 was revised from no growth to a contraction of 0.1%, meaning the eurozone was in a technical recession in the second half of last year.
Market expectations are growing that the ECB will start cutting rates at its next monetary policy meeting on June 6. Money market prices currently indicate an almost 70% chance of a trim in June, according to LSEG data even higher bets on a cut in July or September.
A large number of voting ECB members told DailyExpertNews earlier this month that they expect a rate cut in June, citing the need to avoid an excessive slowdown in the eurozone economy. They also highlighted the risks of oil prices and volatility in the Middle East.
The fact that inflation in the services sector fell for the first time in six months serves as a “more important development that increases our confidence that the ECB will cut policy rates in June,” said Gerardo Martinez, Europe economist at BNP Paribas, in a comment by email.
However, Martinez noted the slightly lower than expected decline in core inflation and volatility in some services sectors, which had pushed up inflation rates in France and Italy.
“With the path likely to be bumpy from here on out and growth data showing that the Eurozone economy is gaining strength, we believe the path beyond June remains more uncertain and we continue to expect a gradual and cautious (quarterly) pace of easing by the ECB . Martinez said.
Jane Foley, head of FX strategy at Rabobank, told DailyExpertNews by email that growth figures were encouraging, and that firmer-than-expected core inflation “could indicate that there is less of an urgent need for looser monetary policy from the ECB .” This supported the euro thanks to the release, she said.
“While a June rate cut is seen as almost a done deal by many market participants, there is still plenty of room for debate over the pace of the ECB's policy moves later this year,” Foley added.