Prices
are
forecast
to
have
risen
by
2.5%
on
the
year
before,
slightly
higher
compared
to
March,
according
to
FactSet
consensus
estimates.
Core
inflation
is
expected
to
be
stable
at
2.7%.
“The
increase
is
likely
to
be
driven
by
a
reversal
of
falling
volatile
items
last
month,
and
base
effects
resulting
from
the
introduction
of
Germany’s
subsidised
train
tickets
last
May,”
the
Algebris
Investments
Global
Credit
team
said
in
a
note
on
Monday.
In
April,
the
greatest
contributors
to
the
annual euro
area inflation
rate
were
services
(+1.64
percentage
points,
pp),
followed
by
food,
alcohol
&
tobacco
(+0.55
pp),
non-energy
industrial
goods
(+0.23
pp)
and
energy
(-0.04
pp),
according
to
Eurostat.
A
Slight
Uptick
in
Inflation
–
No
Cause
for
Panic
“Having
fallen
sequentially
from
December,
some
investors
might
be
dismayed
to
see
this
number
running
up
once
again,”
says
Michael
Field,
European
market
strategist
at
Morningstar,
But
he
says
there
are
three
things
to
bear
in
mind:
•
Given
the
many
components
in
the
inflation
equation,
it
is
highly
unusual
to
see
straight
line
declines
in
the
number.
In
short,
we’ve
been
lucky
so
far.
A
small
increase
month
on
month
is
no
cause
for
panic.
Although
there
are
some
lingering
concerns
about
services
inflation
in
Europe,
the
trend
in
inflation
is
clearly
downward;
•
Inflation
in
Europe
is
running
at
the
lowest
rate
of
any
of
the
large
Western
economies,
a
full
percentage
point
lower
than
in
the
US,
and
only
0.4pp
off
the
European
Central
Bank’s
targeted
level.
With
more
than
90%
of
economists
polled
expecting
the
ECB
to
cut
rates
in
June,
small
upward
moves
in
inflation,
such
as
this,
are
highly
unlikely
to
prevent
this;
•
Core
inflation,
the
measure
of
inflation
that
those
in
the
know
are
most
focused
on,
is
expected
to
be
flat
in
May
at
2.7%.
Core
inflation
strips
out
the
noise
of
volatile
components,
such
as
food
and
energy
prices.
That
core
inflation
has
fallen
by
half
in
just
12
months –
and
remains
low –
is
a
further
indicator
that
we
are
in
a
good
place.
What
Will
the
ECB
do
After
June’s
Meeting?
Eurozone
inflation
data
are
crucial
to
the
process
of
predicting
what
the
ECB
will
do
next,
and,
specifically,
when
it
will
cut
rates.
A
key
inflation
driver
is
wages.
ECB’s
negotiated
wage
tracker
showed
an
increase
to
4.7%
year
on
year
in
Q1
from
4.5%
in
the
fourth
quarter
of
2023.
The
data
beat
analyst
expectations.
“The
surprise
was
driven
by
large
bonus
payments
in
Germany,
which
form
an
increasingly
important
part
to
German
pay
deals
and
therefore
can’t
be
discounted
entirely,”
Algebris
Investments’
note
explains.
In
its
blog,
the
ECB
stated
that
“wage
growth
is
expected
to
remain
elevated
in
2024,
and
show
a
bumpy
profile.”
According
to
Algebris
Investments,
this
“complicates
the
outlook
of
fast
cuts
by
ECB.”
Indeed,
economists
are
adjusting
their
forecasts
for
rate
cuts.
“The
ECB
will
start
cutting
rates
in
June,
given
the
very
high
level
of
rates
today,”
says
Tomasz
Wieladek,
chief
european
economist
at
T.
Rowe
Price,
who
also
expects
that
the
ECB
will
skip
July
and
then
cut
two
or
three
more
times
this
year.
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