MNI Eurozone Inflation Insight - March 2024

EXECUTIVE SUMMARY

Services Inflation To Remain Key Question Mark For ECB

Eurozone March flash headline and core inflation both printed below consensus on a rounded basis, but services stickiness continued to be a running theme in the road back to the ECB’s 2% target.

• Headline HICP was 2.4% Y/Y (vs 2.5/2.6% cons, 2.6% prior) and 0.8% M/M (vs 0.6% prior). Core HICP was 2.9% Y/Y (vs 3.0% cons, 3.1% prior), below 3% Y/Y for the first time since March 2022.
• The ECB’s seasonally adjusted data indicates that core and headline inflation momentum rose for the second consecutive month. However, sequential monthly inflation was lower than February across core categories.
• While some analysts have pointed to Easter-related calendar effects as a driver of the stickiness this month, others have noted that the “Easter effect” was not as large as expected coming into the release.
• While the annual core inflation rate has fallen in each of the last 8 months, recent progress has been only gradual, in large part due to services finding a seemingly firm floor at 4.0% Y/Y.
• In deciding whether to initiate rate cuts in June, these developments underscore the ECB’s need to analyse how labour costs are faring, due to their importance in service sector price setting behaviour.
• Our review of March's preliminary Eurozone inflation data includes breakdowns and analysis of the national inflation prints, and some sell-side reactions.

FOR FULL PDF ANALYSIS:

Mar2024EZCPIReview.pdf