Dhe inflation rate in the euro zone was 7 percent in April. This was announced by the European statistical office Eurostat in Luxembourg on Tuesday after an initial estimate. The rate was 6.9 percent in March, down from 8.5 percent in February.
This means that the strong decline in the rate from March did not continue in April. One of the reasons for this was a so-called statistical base effect. Since March, the prices for energy from this year have been compared with those from the months after the start of the Ukraine war last year; that dampens the rates from a purely technical point of view.
Different tendencies depending on the euro area
Developments in April differed somewhat depending on the euro area. For example, the inflation rate in Spain, where it had previously been relatively low, rose in April from 3.1 to 3.8 percent. In Germany, on the other hand, inflation fell somewhat. According to the national method of calculating the consumer price index (CPI), it fell from 7.4 to 7.2 percent. According to the European calculation method of the Harmonized Index of Consumer Prices (HICP), which is used for comparison with other euro countries, it fell from 7.8 to 7.6 percent.
The reasons varied: in April there were several developments that had the opposite effect on inflation. At least in Germany, for the first time in a year and a half, food has become cheaper on average compared to the previous month. Vegetables and fruit, for example, were cheaper on average than in March, albeit significantly more expensive than in April last year. Other goods in the supermarket, such as bread and cereal products, continued to become more expensive. Some products, such as edible fats and oils, had risen sharply in price after the start of the Ukraine war and were now at least a little cheaper again.
Oil price again a driving factor
Oil and petrol had meanwhile become more expensive in April. The oil organization OPEC plus had announced a production cut before Easter, which had pushed up the oil price on the world markets. Added to this was the wave of travel at Easter, which probably also favored higher fuel prices. Later in the month, concerns about a recession in America caused oil prices to fall again somewhat.
There were some peculiarities due to the early date of Easter: As a result, part of the wave of travel, which is always associated with higher prices in the travel industry, fell in March. This is said to have had a somewhat distorting effect on the inflation figures.
ECB before the election: 0.25 or 0.5 percentage points?
The persistently high inflation should also concern the ECB Council, the highest monetary policy body in the euro zone, at its May meeting on Thursday. According to a survey, the majority of economists expect interest rates to rise by 0.25 percentage points on Thursday. However, some analysts believe that it could be close if the Council does not bring itself to a larger interest rate hike of 0.5 percentage points.
“The inflation outlook remains subject to upside risks despite the ongoing tightening of credit conditions, while the economy has shown much more resilience to higher interest rates and financial stress,” Frederic Ducorzet, economist at Bank Pictet, told FAZ.
A few months ago, the central bank actually announced steps of 0.5 percentage points as its path in the fight against inflation. Of course, it was clear that this path would not last forever. With the turbulence in the banking sector, some members of the Governing Council had become somewhat more cautious about how aggressively the central bank should continue to pursue the course of monetary tightening.
In a recent interview, ECB chief economist Philip Lane said that further rate hikes would be necessary to bring inflation back close to the ECB’s target of 2 percent in the medium term. But he had not commented on the extent of the rate hikes. ECB board member Isabel Schnabel said in an interview that a rate hike of 0.5 percentage points is not off the table yet.
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