Markets
look
to
flash
inflation
figures
for
the
euro
area
that
are
due
by
Eurostat
at
11am
Central
European
Time
on
Tuesday,
April
30,
for
further
confirmation
that
the
price
index
is
converging
toward
the
European
Central
Bank
(ECB)
target
of
2%.
The
data
are
also
crucial
to
figure
out
whether
the
ECB
will
cut
rates
in
June.
Inflation
is
forecast
to
have
risen
by
2.3-2.4%
on
the
year
before,
according
to
consensus
estimates–
a
similar
level
as
in
March.
“Having
gotten
used
to
seeing
month
on
month
declines
in
inflation,
some
market
participants
might
be
disappointed
to
see
a
flat
reading
month
over
month.
However,
after
the
positive
surprise
in
March
that
inflation
fell
by
0.2%,
a
flat
reading
for
April
is
a
good
result,”
said
Michael
Field,
European
Market
Strategist
at
Morningstar.
In
March,
the
greatest
contributors
to
the
annual euro
area inflation
rate
came
from
services
(+1.76
percentage
points,
pp),
followed
by
food,
alcohol
&
tobacco
(+0.53
pp),
non-energy
industrial
goods
(+0.30
pp)
and
energy
(-0.16
pp),
according
to
Eurostat.
“Our
composite
measure
of
long-term
inflation
expectations
has
recently
declined
meaningfully”,
Goldman
Sachs
wrote
in
the
bank’s
April’s
Euro
Area
Inflation
Monitor.
“Indicators
of
near-term
price
expectations
have
mostly
cooled
in
recent
months.
Notably,
services
selling
price
expectations
have
declined
for
two
months
running,
after
a
Q4
pickup
extending
to
January.”
By
December,
Goldman
Sachs’s
economists
expect
eurozone
headline
and
core
inflation
at
2.6%
year
on
year
and
2.3%
year
on
year
respectively.
Will
the
ECB
Cut
Interest
Rates
in
June?
The
ECB
left
interest
rates
unchanged
in
its
April
meeting,
signaling
an
initial
rate
cut
in
June.
After
the
announcement,
President
Christine
Lagarde
said
that
“inflation
is
expected
to
fluctuate
around
current
levels
in
the
coming
months
and
to
then
decline
to
our
target
next
year,
owing
to
weaker
growth
in
labour
costs,
the
unfolding
effects
of
our
restrictive
monetary
policy,
and
the
fading
impact
of
the
energy
crisis
and
the
pandemic.”
However,
ECB
officials
admitted
that
the
recent
increase
in
oil
prices
“is
an
item
which
matters
a
lot.”
They
are
monitoring
oil
price
developments,
and
in
particular
the
risk
of
further
escalation
in
the
Middle
East.
“Higher
energy
prices
will
have
a
mechanical
effect
on
consumer
energy
prices
and,
therefore,
headline
inflation,”
according
to
a
Goldman
Sachs
note,
which
adds
that
the
pass-through
into
core
inflation
is
usually
much
smaller
and
more
uncertain. However,
the
economists
“see
limited
risks
from
the
recent
increase
in
energy
prices
for
the
ongoing
disinflation
process
and
the
outlook
for
ECB
policy,
unless
energy
prices
rise
materially
more
from
here.”
Morningstar’s
Field
also
sees
little
risk
to
the
rate
cut
timeline.
“Inflation
is
within
spitting
distance
of
the
ECB’s
2%
targeted
level,
and
unlike
in
the
US
where
concerns
of
a
resurgence
in
inflation
are
more
pronounced,
the
picture
in
Europe
is
entirely
different.
Recent
polls
have
economists
overwhelmingly
predicting
June
for
the
first
interest
rate
cut.
April
30’s
data
is
very
unlikely
to
change
that.”
The
core
inflation
reading
will
be
key,
which
is
expected
to
fell
by
0.1%
year
over
year
to
2.8%.
According
to
Field,
the
continued
fall
in
core
inflation
should
be
“another
positive
sign”,
because
monetary
policy
hawks
had
previously
been
concerned
that
services
inflation
could
pick
up
again
in
Europe,
driven
by
tight
labour
markets–
the
data
should
say
otherwise.
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