EU Inflation Update: April Flash CPI Data Out on Tuesday
In March, the primary inflation rate dropped to 6.9%, a decrease from the previous month’s 8.5%, marking its lowest since February 2022. However, the situation regarding core prices was less optimistic, as they surged to a new all-time high of 5.7%. If this trend continues, it may give confidence to the more aggressive members of the governing council, who could announce a further interest rate hike of 50 basis points on Thursday and pledge another 50bp increase in the summer. However, there are indications that core inflation has possibly reached its peak. The more future-oriented PPI figures have been decelerating for several months and should begin to impact core prices soon.
ECB to Decide on Interest Rates on Thursday Based on April CPI Figures
This week, the ECB will meet to determine whether to move 25bps or 50bps, depending on Tuesday’s EU flash CPI numbers for April. Despite a slew of ECB officials recently stating that there is still a long way to go before considering a pause in the rate-hiking cycle, this week’s core CPI print may prompt continued aggression.
The ECB may take excessive action in response to PPI changes, which could pose a risk. PPI highs of 43.3% from last August have sharply declined to 13.2%, with negative month-on-month readings. This indicates that the ECB may need to be cautious in its approach.