Eurozone inflation unexpectedly falls to 2.4%

Eurozone inflation fell unexpectedly last month, with consumer prices rising by 2.4% in the year to March as price pressures in the single-currency region continue to ease.

This was down from the 2.6% rate in February, the statistical office of the European Union revealed, thanks to a fall in energy prices that pulled down overall inflation. Economists were expecting a reading of 2.5%.

Core inflation, which excludes volatile food and energy costs, eased to 2.9% from 3.1%, while inflation fell to 2.3% in Germany (down from 2.7% the month before, and to 2.4% in France from 3.2%.

It is the first time in two years core inflation has been below 3%.

Eurostat added that services is expected to have the highest annual rate in March at 4.0%, which was stable compared with February, followed by food, alcohol & tobacco at 2.7%, compared with 3.9% the month before.

Non-energy industrial goods came in at 1.1%, in comparison to 1.6%, and energy dropped 1.8%, compared to a 3.7% decline.

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“With inflation now within spitting distance of the European Central Bank’s 2% targeted level, investors will be even more convinced that interest rate cuts are on the near-term horizon,” Michael Field, European market strategist at Morningstar said.

The fall in inflation has now increased expectations of an interest rate cut by the European Central Bank (ECB), which is widely expected to loosen monetary policy at its meeting in June.

However, it is still expected to hold rates steady at its next meeting on 11 April as more data on wage growth will come in May.

Carsten Brzeski, global head of macro at ING, said the data from Germany, which is the eurozone’s largest economy, “brings some relief for the ECB”.

Separately, new data also revealed that the unemployment rate for the eurozone came in at 6.5% for February, holding steady after January's reading was revised higher from 6.4% to 6.5%. The consensus forecast was 6.4%.

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