There is an air of anticipation on the financial markets for the data that Eurostat will publish tomorrow on theinflation in the Euro Area in April. Today, the previews from Germany and Spain. The former saw its trend price growth drop slightly to 2.2% from 2.3% in March, although the harmonized figure rose to 2.4% from 2.3% and above expectations. Finally, the “core” figure fell to 3%, the lowest since March 2022. In Spain, however, inflation rose to 3.3% from 3.2% in March, although below expectations of 3. 4%.
The harmonized figure also rose from 3.3% to 3.4%. And the “core” figure fell to 2.9% from 3.3% in March, reaching its lowest level since January 2022.
Perhaps the data from France and Italy are decisive
Small variations, therefore, which suggest that April inflation in the Eurozone could either remain unchanged or even signal a timid recovery on an annual basis, the first of this 2024. In March, the index marked an increase in consumer prices by 2.4% in the area. At this point, given the weight of the two economies, it will probably be France and Italy that will shift the balance to one side or the other. In our country, Istat has revised the March figure downwards to 1.2% from the 1.3% initially communicated. Insee, however, estimated the French figure at 2.3%.
Rate cut in June almost certain
April inflation will not be the last data before the next European Central Bank (ECB) board meeting in early June. Between now and then, Frankfurt will also have the opportunity to understand how prices will have moved in May. However, tomorrow’s data will prove decisive in creating that climate around which consensus will necessarily have to be created for the decision that the board will have to adopt. At this point, the rate cut of interest does not seem in doubt.
The real debate is already about what to do after June. Will there be an encore in July or a break before cutting again after the summer?
Another question concerns the size of the cut in June. And perhaps tomorrow’s two data will be able to tell us something more. It will not only be the April inflation that will be published by the statistical institute, but also the GDP in the Eurozone in the first quarter. The combinations would be different. The most favorable scenario for an immediate cut of 0.50% contemplates inflation falling towards the 2% target, together with a stagnant or recessionary GDP. The most adverse scenario to this hypothesis would consist of recovering inflation and accelerating GDP. In the fourth quarter of last year, it remained unchanged after -0.1% in the third quarter. Recession narrowly avoided.
April inflation, expectations unclear
Upon publication of the German data, the exchange euro Dollar this afternoon it rose above 1.07, while lo BTp-Bund spread fell below 130 basis points. Two variations with opposite meanings and which provide a contradictory reading of April inflation in Europe’s largest economy. The first would signal a more “hawkish” ECB, the second more “doveish”. It must be said that the weakening of the dollar against the main world currencies would also be weighing on the strengthening of the euro in these hours.
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