Eurozone inflation continued its quiet retreat in April, slipping ever closer to the European Central Bank’s target like a well-behaved houseguest who finally remembered to take off their shoes. Consumer prices in the 20-member currency bloc rose at an annual pace of 2.4 percent, precisely the same as in March, and tantalisingly close to the ECB’s Goldilocks zone of 2 percent inflation that is neither too hot nor too cold but just right for central bankers and their spreadsheets.
Core inflation, the slightly more commitment-phobic cousin of headline inflation that strips out the volatile realms of food and energy prices, fell to 2.7 percent, down from 2.9 percent in March. Services inflation, often the more stubborn member of the economic family, stuck its heels in at 3.7 percent, showing once again that while energy prices may fluctuate like a caffeinated squirrel, service providers prefer to climb down the inflationary mountain with the cautious pace of an arthritic sloth.
The data gives fresh wind to the sails of monetary-policy doves who now believe that the European Central Bank can begin loosening interest rates as early as June. Markets have all but penciled it in with the confidence of an overzealous intern, expecting a quarter-point rate cut that would be the ECB’s first reduction since it began its dramatic tightening crusade in July 2022 to battle a spike in inflation caused largely by a cocktail of pandemic hangovers, energy crises and what economists call “oh dear everything is up in flames.”
Speaking with a calm that comes only after several cautious data reviews and perhaps one or two espressos, ECB President Christine Lagarde has repeatedly indicated that if the data keeps behaving itself, the central bank may consider carefully removing the punch bowl in early summer, or at least watering it down ever so slightly.
This marks a clear contrast with the U.S. Federal Reserve, which finds itself in a more delicate dance with inflation that seems to have taken up salsa lessons. The Fed recently hit pause on rate cuts as inflation across the Atlantic proves more resistant, perhaps owing to factors such as robust consumer spending, strong wage growth or simply a national affection for economic drama.
Markets now await the ECB’s June meeting with the quiet anticipation of someone checking their phone every five minutes for a text that may or may not come.
After all, nothing turns heads in monetary policy circles quite like a central bank saying “yes” to loosening its collar — even just a little.