ECB Underlying Inflation Metrics Support June Cut Consensus

The ECB’s underlying Eurozone inflation metrics moderated in March. This provides an additional layer of support to the current consensus for a first ECB rate cut in June, particularly given the criteria for easing policy that was laid out by the ECB at the April decision.

• PCCI ex-energy and food – the ECB’s preferred metric to assess underlying inflation – remained at the 2% target in March, (2.01% Y/Y vs 2.04% prior), while PCCI overall was 2.03% Y/Y (vs 2.06% prior).
• Other underlying metrics also declined in March, with the model-based Supercore measure now the only series above 3% Y/Y (printing at 3.4% Y/Y vs 3.5% prior).
• The ECB’s April policy statement indicated that the criteria for easing policy are based on an “updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission”. March’s data does not stand in the way of that second criterion.
• However, Chief Economist Lane caveated in his speech on Monday that even though underlying metrics have seen substantial disinflation, domestic inflation remains high relative to broader inflation measures.