Inflation in the eurozone came in lower than expected at 2.4% in March, down from 2.6% in February.
Core inflation also fell from 3.1 to 2.9%. This better-than-expected reading boosts chances of ECB rate cuts, but don’t expect them to happen this month. An early Easter usually means a bump in inflation due to the holiday effect, but this doesn’t show up in today’s data. The monthly seasonally adjusted data shows a decline for both goods and services in March, which is a very benign signal on eurozone inflation.
This could result in inflation falling more slowly than hoped for by the ECB. Then again, with the bank's own forecasts for inflation falling to 2% next year and 1.9% in 2026, the labour market is unlikely to delay rate cuts much. We do think that a continued tight labour market will limit the amount of reductions the ECB will ultimately do. We expect 0.75% in total for this year.
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