Eurozone inflation unexpectedly fell to 2.4% in March, fueling optimism that the ECB may cut interest rates by the summer.
The decline was mainly due to smaller increases in food and commodity prices, while service prices remained unchanged.
Despite the decline in inflation, economists and the ECB have been cautious in making sure that the fall in inflation is sustainable and stable before proceeding to cut interest rates.
In March, during the latest financial whirlwind, eurozone inflation fell to 2.4%, confounding economists and their crystal balls. The unexpected drop in inflation from the previous month, when it stood at 2.6%, sparked a wave of #optimism that a rate cut by the European Central Bank (ECB) was just around the corner. However, when the confetti subsided, a closer look revealed a puzzling picture.
The weakening in inflation was mainly due to lower increases in food and commodity prices, which somewhat softened the blow from stable service prices. It seems as if we are watching a high-stakes balancing act where one wrong move and everything will collapse. Economists polled by Bloomberg expected prices to rise 2.5% in March, but the actual data came in slightly higher, much to the relief and dismay of the financial community.
The data has now arrived on the ECB table where the big boys will be discussing monetary policy, but the mood is cautiously optimistic. The decline in inflation points to a possible turning point in what is being called the region's worst cost of living crisis in a generation. However, as the ECB Council meeting approaches, the question on everyone's lips is how quickly the levers of monetary policy easing will be loosened.
With inflation expected to return to the 2% target, June is seen as the starting point for a rate cut. However, the intrigue is thickening as officials avoid the risk of acting too hastily as the economy could shake under the weight of high borrowing costs.
SAVE #LINK .
Read us at: Compass Investments