EU Inflation Slows To 1-Year Low

EU Inflation Slows To 1-Year Low

Friday 31st March 2023 – 10:30 (BST)

Preliminary estimates have shown the Eurozone inflation rate eased to 6.9% YoY during March. While slightly below market consensus of 7.1%, it still remains well above the European Central Bank’s (ECB) target of 2.0%. The reading also marks the lowest level since February 2022.

The core index, which excludes volatile items such as food and energy, hit a fresh record high of 5.7%, putting pressure on policymakers to push on with further rate hikes. Meanwhile, the cost of energy declined for the first time in two years (-0.9% vs 13.7% in February), while prices of non-energy industrial goods increased at a softer pace (6.6% vs 6.8%).

Inflation accelerated for both food, alcohol, and tobacco (15.4% vs 15.0%) and services (5.0% vs 4.8%). The rise in food, alcohol, and tobacco prices is particularly concerning as it impacts the most basic necessities of the population.

On a monthly basis, consumer prices rose 0.9% in March, following a 0.8% advance in February. This increase in prices could be an indication that inflation is still rising, despite the lower YoY figure.

The ECB has already raised interest rates twice this year, but with inflation still well above target, it may need to take further action. However, any additional rate hikes could risk stifling economic growth and increasing unemployment in the Eurozone.

The ECB has emphasised that it will be monitoring the inflation data closely and will take necessary measures to achieve its inflation target. Policymakers will be hoping that inflation will ease further in the coming months, reducing the need for further rate hikes.