Pickup In Core Momentum Clouded By Easter Effect

The ECB’s seasonally adjusted data indicates that core and headline inflation momentum rose for the second consecutive month in March. However, sequential monthly inflation was lower than February across core categories.

• On a SA sequential monthly basis, core inflation was 0.24% M/M (vs 0.38% prior), with services (0.42% M/M vs 0.46% prior) and NEIG (-0.02% M/M vs 0.12% prior) also moderating.
• A reminder that Bundesbank’s estimate of SWDA German CPI saw sequential services CPI at 0.4% M/M (as in February) while NEIG pulled back to 0.0% M/M (vs 0.4% prior).
• Core inflation momentum, measured as the 3m/3m saar, was 3.16% in March (vs 2.40% in February), the highest since September 2023.
• This was driven by rises in both services (4.35% vs 3.33% prior) and NEIG (1.29% vs 1.07% prior) momentum.
• The ECB’s data is working day and seasonally adjusted, but there remains some uncertainty as to how well the Easter-related calendar effects have been accounted for.
• In their inflation preview, JP Morgan, found that “the [ECB’s] seasonal adjustment (unsurprisingly) does not correct the noise generated by the early timing of Easter”.
• Nonetheless, the strength in services inflation (on an annual NSA and inflation momentum basis) may prompt the ECB to tone down expectations of a June rate cut at next week’s meeting and continue to maintain a data dependent approach until key Q1 macroeconomic data is released.