Euro zone inflation unexpectedly slows to 2.4% in March, with core print also below forecast

Inflation in the 20-nation euro zone eased to 2.4% in March, according to flash figures published by the European Union’s statistics agency Wednesday, boosting expectations for interest rate cuts to begin in the summer.

Economists polled by Reuters had forecast the rate would hold steady against the previous month at 2.6%.

The core rate of inflation, excluding energy, food, alcohol and tobacco, cooled from 3.1% to 2.9%, also coming in below expectations.

However, inflation in services — a key watcher for the European Central Bank — remained stuck at 4% for a fifth straight month, pointing to continued pressure from wage growth.

Another indicator for the ECB released Wednesday, the euro area unemployment rate, stood at 6.5% in February, stable against January but down from 6.6% in February 2023.

Price rises in France and Spain came in lower than forecast last week. On Tuesday, headline inflation in the bloc’s biggest economy, Germany, was estimated at a three-year low of 2.2%.

Markets expect the euro zone’s central bank will begin lowering borrowing costs in June — a position reflected in the recent messaging of ECB decision-makers. They are next set to hold a monetary policy meeting on April 11.

Even Austrian central bank head Robert Holzmann, an ECB hawk who previously said it was possible that no cuts at all would take place in 2024, told Reuters this week that he did not have an “in-principle objection to easing in June.”

“The current narrative is clearly pointing to a first rate cut in June,” Carsten Brzeski, global head of macro at ING, said in a note Wednesday. That is due to the March inflation print as well as the data on wage growth and ECB staff forecasts on gross domestic product and inflation that will be released by then, he said.

Kamil Kovar, senior economist at Moody’s Analytics, said the release of Wednesday “poured cold water on the idea that the last mile in defeating inflation will be hardest,” and reiterated a call for five rate cuts this year.

“Inflation has declined despite a jump in energy inflation, and a boost from an early Easter. Even if the good headline number masked some less favorable details, such as services coming in hot while food prices tumbled, inflation overall is still on course to dip below 2% sometime during the summer,” Kovar said.