The pace of consumer price growth in the Eurozone edged up last month, providing monetary hawks at the European Central Bank with another reason to push for higher interest rates on Thursday.
Headline annual inflation in the single-currency area increased to 7.0% in April, according to preliminary data from Eurostat. The number beat the latest market forecast of 6.9%, which was also the inflation rate reported last month.
“The unexpected increase is the result of a bounce-back in energy price inflation, after the strong negative base effect in March, and slightly higher service price inflation,” wrote Carsten Brzeski, head of macroeconomics at ING. Eurostat said energy costs last month showed annual growth of 2.5% after contracting 0.9% in March.
Energy costs were the main driver behind inflation for much of last year: in April 2022, they jumped 37.5%, according to Eurostat.
The initial estimate for the core rate, which excludes energy, food, alcohol, and tobacco costs, showed a slight decline to 5.6%, which was in-line with the market estimate and just off the March record of 5.7%.
On Tuesday, Italy, the single-currency area’s third-largest economy, said its initial EU-harmonised consumer price growth surged unexpectedly last month to 8.8% from 8.1% in March.
Other major Eurzone economies sent mixed signals on Friday. The biggest, Germany, reported a preliminary two-tenths decline in EU-harmonised annual inflation to 7.6%, a mark lower than expected.
In France, the euro area’s second-largest economy, the preliminary EU number rose unexpectedly to 6.9% from 6.7%.
Spain, the fourth-largest economy, said harmonised consumer prices grew 3.8%, a figure well ahead of March’s 3.1% but below the market forecast of 4.1%.
More numbers feed data-dependent ECB
Divergent directions from the headline and core inflation readings could spur further consternation in Frankfurt, where ECB policymakers are to convene Wednesday before they announce their latest monetary policy decision a day later afternoon. Tuesday’s report from Eurostat followed last week’s announcement that the initial reading for Eurozone GDP growth in the first quarter was only 0.1%, half of the estimate but above the flat reading published for Q4 2022.
But one analyst said the latest inflation data will unlikely impact the mindset of rate-setters. “These numbers do not decisively tip the balance ahead of Thursday’s ECB decision,” wrote Andrew Kenningham, Chief Europe Economist at Capital Economics. “Our hunch is that the bank will pull a hawkish surprise by going for a 50-basis point rather than 25bp hike, and we think sticky services inflation and the tight labour market will ultimately persuade them to raise rates to 4.0% before ending the tightening cycle.”
ING’s Brzeski offered a more circumspect prediction: “The only open question is whether the ECB will go for 25 basis points or 50. Out in the open, only Austrian central bank governor Robert Holzmann has been advocating 50bp. The other hawks, like Isabel Schnabel, recently left the option of 50bp open but didn’t officially subscribe to it.”
Brzeski also cited “sticky inflation”, saying it stresses the need to continue hiking, but he noted that in light of weaker-than-expected GDP expansion and weak loan growth and loan demand data released by the ECB Tuesday, “the case for slowing down the pace and size of rate hikes has become stronger. We stick to our call of a 25bp rate hike on Thursday.”
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- Annual rate outpaces estimate
- Italian inflation jumps to 8.8%
- Policymakers face weak growth, persistent inflation
- ECB rate decision due Thursday
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
2 May 2023 |10:00 GMT
The pace of consumer price growth in the Eurozone edged up last month, providing monetary hawks at the European Central Bank with another reason to push for higher interest rates on Thursday.
Headline annual inflation in the single-currency area increased to 7.0% in April, according to preliminary data from Eurostat. The number beat the latest market forecast of 6.9%, which was also the inflation rate reported last month.
“The unexpected increase is the result of a bounce-back in energy price inflation, after the strong negative base effect in March, and slightly higher service price inflation,” wrote Carsten Brzeski, head of macroeconomics at ING. Eurostat said energy costs last month showed annual growth of 2.5% after contracting 0.9% in March.
Energy costs were the main driver behind inflation for much of last year: in April 2022, they jumped 37.5%, according to Eurostat.
The initial estimate for the core rate, which excludes energy, food, alcohol, and tobacco costs, showed a slight decline to 5.6%, which was in-line with the market estimate and just off the March record of 5.7%.
On Tuesday, Italy, the single-currency area’s third-largest economy, said its initial EU-harmonised consumer price growth surged unexpectedly last month to 8.8% from 8.1% in March.
Other major Eurzone economies sent mixed signals on Friday. The biggest, Germany, reported a preliminary two-tenths decline in EU-harmonised annual inflation to 7.6%, a mark lower than expected.
In France, the euro area’s second-largest economy, the preliminary EU number rose unexpectedly to 6.9% from 6.7%.
Spain, the fourth-largest economy, said harmonised consumer prices grew 3.8%, a figure well ahead of March’s 3.1% but below the market forecast of 4.1%.
More numbers feed data-dependent ECB
Divergent directions from the headline and core inflation readings could spur further consternation in Frankfurt, where ECB policymakers are to convene Wednesday before they announce their latest monetary policy decision a day later afternoon. Tuesday’s report from Eurostat followed last week’s announcement that the initial reading for Eurozone GDP growth in the first quarter was only 0.1%, half of the estimate but above the flat reading published for Q4 2022.
But one analyst said the latest inflation data will unlikely impact the mindset of rate-setters. “These numbers do not decisively tip the balance ahead of Thursday’s ECB decision,” wrote Andrew Kenningham, Chief Europe Economist at Capital Economics. “Our hunch is that the bank will pull a hawkish surprise by going for a 50-basis point rather than 25bp hike, and we think sticky services inflation and the tight labour market will ultimately persuade them to raise rates to 4.0% before ending the tightening cycle.”
ING’s Brzeski offered a more circumspect prediction: “The only open question is whether the ECB will go for 25 basis points or 50. Out in the open, only Austrian central bank governor Robert Holzmann has been advocating 50bp. The other hawks, like Isabel Schnabel, recently left the option of 50bp open but didn’t officially subscribe to it.”
Brzeski also cited “sticky inflation”, saying it stresses the need to continue hiking, but he noted that in light of weaker-than-expected GDP expansion and weak loan growth and loan demand data released by the ECB Tuesday, “the case for slowing down the pace and size of rate hikes has become stronger. We stick to our call of a 25bp rate hike on Thursday.”