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April 8, 2024

Chart of the Week: Strengthening case for euro area rate cuts

by Fathom Consulting.

The euro area’s headline annual inflation rate was 2.4% in March, according to estimates released by Eurostat on 3 April, with the core inflation rate at 2.9% — both down 0.2 percentage points since February. With headline inflation approaching the 2% target, if core inflation continues decreasing the European Central Bank might soon start cutting rates. Services inflation remains at 4%, however, so the central bank may well be cautious about cutting rates at its next meeting, on 11 April. But records from the ECB’s March meeting state that the central bank is increasingly confident that a rate cut is approaching: “While it was wise to await incoming data and evidence, the case for considering rate cuts was strengthening.” With the newly released numbers showing a further decrease in inflation, a June rate cut is likely. This could mean that the ECB will cut rates before the Fed. Fed chairman Jay Powell said in a speech on Wednesday that greater confidence that inflation is moving towards the 2% target will be needed before the Fed can lower its policy rate.

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The views expressed in this article are the views of the author, not necessarily those of LSEG.


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