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Confirmed euro zone inflation fall boosts ECB's cut plan

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Euro zone inflation slowed across the board last month, reinforcing expectations for a European Central Bank interest rate cut in June, even as rising energy costs and a weak euro cloud the outlook, final data from Eurostat showed today.

Inflation in the 20 nations sharing the euro currency slowed to 2.4% last month from 2.6% in February, in line with a preliminary estimate released earlier this month.

The euro zone is facing opposing inflationary forces, which could keep the headline rate fluctuating around current levels over the coming months before dipping towards 2% in the autumn. "The recent rise in commodity and energy prices will add to headline in the coming months, with euro/dollar weakness sponsored by Fed-ECB policy divergence compounding the move," TS Lombard said in a note.

But this is mostly a move in the dollar, not the euro, economists says, and the trade weighted euro has weakened much less, muting the impact of exchange rate movements. Policymakers have so far said that the oil price and exchange rate moves are too small to fundamentally alter the inflation outlook but market expectations for ECB rate cuts continue to retreat.

Business Euro Euro Zone Inflation European Central Bank Inflation Oil Prices

 

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