French and Italian inflation data boost hopes of ECB rate cut

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French inflation has fallen faster than forecast to its lowest level since July 2021, while price growth also undershot expectations in Italy to boost hopes that the European Central Bank will cut interest rates soon.

Consumer price growth in France slowed to 2.3 per cent in March, down from 3.2 per cent in February, according to figures released by the national statistics agency on Friday. Economists polled by Reuters had expected a reading of 2.8 per cent.

The decline reflected slower annual price rises in all areas, including a drop in services inflation to 3 per cent, a fall in energy inflation to 3.4 per cent and a sharp slide in food inflation to 1.7 per cent. Fresh food prices fell 3.9 per cent in the year to March.

On a month-on-month basis, inflation in the eurozone’s second-largest economy slowed from 0.9 per cent to 0.3 per cent.

The figures, coming ahead of data next week that is expected to show eurozone inflation slowed slightly to 2.5 per cent, are likely to solidify investor bets that the ECB will start cutting interest rates by June at the latest.

French central bank governor François Villeroy de Galhau said in a speech on Thursday that the ECB could even cut rates at its next meeting, on April 11, if inflation kept falling faster than forecast and the economy remained mired in stagnation.

“We must not ignore the risk of weighing excessively on activity by keeping our foot pressed on the monetary brake for too long,” he said, adding that this meant the “time has come” to start cutting rates this spring.

“The exact date of the first cut — April or early June — has no existential importance,” he added.

In Italy, consumer prices rose 1.3 per cent in the year to March, a smaller than expected increase from 0.8 per cent in the previous month. The Italian statistics agency said the increase reflected the end of seasonal clothing sales as well as higher prices for transport services and a slower decline in energy costs. Economists had expected a reading of 1.5 per cent.

Spanish data published on Wednesday showed inflation in the eurozone’s fourth-largest economy increased slightly less than widely forecast, from 2.9 per cent in February to 3.2 per cent in March. Spanish core inflation, which strips out energy and fresh food prices to give a better picture of underlying price pressures, slowed from 3.5 per cent in February to 3.3 per cent in March.

The annual growth of consumer prices in the 20 countries that share the euro slowed to 2.6 per cent in February, bringing it closer to the ECB’s 2 per cent target.

After this week’s “three-for-three downside surprises in eurozone inflation,” Claus Vistesen at Pantheon Macroeconomics said on X: “Is an April cut back on the menu? Not sure, but it’s now tight.” He added that the latest data was “something for the ECB to ponder over the long weekend”.

However, rate-setters worry that rapid wage growth is still pushing up prices in the labour-intensive services sector, where inflation slowed only slightly to an annual pace of 3.9 per cent in February.

Since the disruption caused by the pandemic and Russia’s full-scale invasion of Ukraine triggered the biggest price surge for a generation, eurozone inflation has fallen rapidly from its peak of 10.6 per cent in October 2022. This has raised hopes that the ECB could soon start to lower borrowing costs after it raised the benchmark rate to a record 4 per cent last year.

Senior ECB policymakers have signalled they are likely to wait until June to give them time to check if wage pressures are moderating enough to allow inflation to reach their target.


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