¿Podría el BCE reducir los tipos este mes con la inflación de la eurozona al 2.2%?

The Euro area’s inflation has reached the lowest level in four months (2.2%), but rising monthly prices and persistent inflation leave it divided before its meeting on April 17.

Eurozone inflation cooled more than expected in March, fueling market speculation that the European Central Bank (ECB) may continue to cut interest rates this month. However, despite the overall figure dropping to a four-month low, various internal and external dynamics could complicate the ECB’s decision at its April 17 meeting.

According to Eurostat’s preliminary estimate released on Tuesday, consumer prices in the Eurozone rose by 2.2% year-on-year in March, the lowest level since November 2024 and below the consensus forecast of 2.3%. Core inflation, which excludes volatile energy and food prices, decreased to 2.4% from 2.6% in February, slightly below the expected 2.5%.

Behind the headline figures, not all indicators point to a green light for monetary easing. While annual inflation slowed down, monthly figures told a different story. General inflation accelerated by 0.6% from February, marking the largest intermediate rise in almost a year.

Core inflation also surged by 0.8% compared to the previous month, reaching the highest level since March 2024. Price pressures remain high in certain sectors, with food, alcohol, and tobacco costs increasing by 2.9% annually.

The inflation of services, a key indicator closely followed by the ECB for its correlation with wage increases and domestic demand, slowed to 3.4% year-on-year, compared to 3.7% in February. While this is the smallest digit since June 2022, the monthly increase of 0.4% shows that underlying pressures remain moderate.

Geographically, inflation remained uneven across the monetary bloc. France recorded the lowest harmonized annual inflation of 0.9%, while Estonia, Croatia, and Slovakia were at 4.3%. On a monthly basis, consumer prices increased by 1.8% in Greece, 1.7% in Portugal, and 1.6% in Italy. In contrast, Belgium, Estonia, and Luxembourg saw monthly decreases.

The financial markets are leaning towards a rate cut, but are political leaders prepared for it? Up until Tuesday, the monetary markets priced in a 65% probability of a 25 basis point rate cut at the April 17 meeting. However, there are signs of division within the ECB’s Governing Council.

Some officials are considering the possibility of a rate cut in April while waiting for further clarification, especially in terms of the economic implications of US trade policy and increased European defense spending. While a rate cut is still on the table, some Governing Council members are leaning towards a pause in April due to high uncertainty surrounding US trade policy and rising European defense spending. The ECB’s deposit rate currently stands at 2.5%, compared to a peak of 4%.

Despite signals for further easing, some analysts argue that the March data sends mixed messages, highlighting the need for further confirmation of economic data.

Economists anticipate rate cuts, but not without risks. The Chief Economist for Europe at Goldman Sachs, Sven Jari Stehn, believes that core inflation is poised to reach the ECB’s 2% target by year-end. He points out that the ECB’s deposit rate at 2.5% still seems restrictive. According to Stehn, ECB President Christine Lagarde has noted the economic impact of more conservative rates in line with Goldman Sachs’ studies.

The Eurozone faces significant downside risks due to US tariffs, with a broad 25% tariff hike potentially impacting 1.4% of the GDP. Bank of America Economist, Rubén Segura-Cayuela, sees a downward trend in inflation but remains cautious.

While there is no immediate challenge to their view from monthly data or the labor market, he maintains a forecast of 1.5% inflation for September. The possibility of a rate cut in April has increased, but communication is key.

ABN AMRO’s Head of Macroeconomic Research, Bill Diviney, suggests that while a rate cut in March was widely anticipated, April is less certain. He points out that the Governing Council has indicated that rates are close to a neutral level. Given fiscal support and potential trade disruptions, June appears more optimal for the next move.

ABN AMRO believes that the ECB needs more time to assess the impact of fiscal policy, trade risks, and service sector inflation, which remain above target. Their baseline scenario is for the ECB to hold in April and resume rate cuts in June.

BCE Board Member Olli Rehn stated on Tuesday that if data confirms the baseline hypothesis, the correct monetary policy response would be a rate cut in April.

In summary, the ECB’s decision on April 17 is far from straightforward and will likely depend not only on inflation trends but also on external risks related to impending tariff wars and their potential economic repercussions.

FUENTE