ADVERTISEMENT

Euro zone inflation seen easing to 3.4% in April

Food

Euro zone inflation is likely to have cooled slightly in April thanks to a comparison with a strong rise this time last year, but will still hold at disturbingly high levels for the European Central Bank.

A poll of 45 economists showed a median forecast for euro zone inflation to ease to 3.4% in April from a record high of 3.6% hit in March. It is expected to dip because of base effects from a sharp rise last year in German tuition fees as well as a sharp increase in food prices at that time. But analysts are split on the outlook. Twenty-five of 45 see inflation easing to 3.4% or below, 17 see it dipping to 3.5%, while three see it holding at March’s level, or even increasing. Forecasts ranged from 3.2 to 3.7%.

A mild fall would not be likely to ease tensions at the ECB, which has an inflation ceiling of 2%, and might not loosen hawkish rhetoric from its policymakers. Economists are still forecasting rates to be cut twice by 25 basis points from the current 4.0% level in the second half of this year, but many have been pushing into the future the timing of those cuts or taking them out altogether.

In contrast, financial markets are pricing in a slim chance of a rate hike this year. “Following a string of upward surprises over the past few months, April’s figures are likely to prove relatively favorable,” said Luigi Speranza at BNP Paribas. He forecast inflation at 3.4%, but said risks were to the upside.

German inflation is also expected to ease in April to 2.8% from 3.1% in March when data is released on Monday. For Italy, economists see inflation nudging up to 3.4% from 3.3% in March. Data for Italy is also scheduled for release on Wednesday. But some see no let-up for inflation this month.  “Energy and transport prices likely edged up this month and we do not see any relief for inflation,” said Kenneth Broux at Lloyds TSB, who forecast it to hold at 3.6%. He said around a 10% increase in oil prices during April, as well as rising food prices, would counteract any downside base effects. “Inflation is not going to fall back to target this year and probably not next year. So it does not support any case for lower rates.”

Oil prices rose from around $100 a barrel at the start of the month to a record above $119 this week. They have since retreated only slightly to trade around $118. A separate poll this week showed inflation averaging 3.0% this year. Economists also see the European Commission’s Economic Sentiment index falling next week to 99.0 from 99.6 when data is released at the same time as inflation figures. (Reuters)

ADVERTISEMENT

Digitization, sustainability among characteristics of future... Analysis

Digitization, sustainability among characteristics of future...

Lawmakers approve residency permit for digital nomads Parliament

Lawmakers approve residency permit for digital nomads

Transformation Delineation - Microsoft country general manag... Podcasts

Transformation Delineation - Microsoft country general manag...

Most districts not planning mandatory vaccination at kinderg... City

Most districts not planning mandatory vaccination at kinderg...

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.