Inflation in Euro Zone Surges While Core Price Growth Experiences Unanticipated Decline

Recently released preliminary data reveals a surge in the euro zone’s headline inflation rate in April, while core price growth took an unexpected downturn. Eurostat reports that last month’s headline inflation reached 7%, a slight increase from 6.9% in March. However, core inflation, which factors out food and energy prices, dipped to 5.6% in April, down from 5.7% the previous month. This outcome deviates from Reuters analysts’ predictions of 7% for headline inflation and 5.7% for core inflation.

The new data comes just before the European Central Bank (ECB) is scheduled to announce an updated monetary policy decision this Thursday. The mixed inflation figures add an element of uncertainty to the upcoming decision, rather than offering a clear indication of the potential rate change.

Market analysts are divided on whether the ECB will implement a 50 or 25 basis point rate increase on Thursday. The jump in headline inflation may prompt hawkish ECB members to advocate for a more aggressive 0.5 percentage point hike. Conversely, the unforeseen drop in core price growth could lead to a more cautious approach, resulting in a more moderate rate hike of 25 basis points.

During the first quarter of the year, the euro zone’s economy saw a modest growth of 0.1%, which fell short of market projections. The ECB initiated its current series of rate hikes in July 2022, raising its primary rate from -0.5% to zero. The primary rate now stands at 3%.

Despite ongoing rate increases, inflation continues to exceed the ECB’s 2% target. Estimates published by the International Monetary Fund last week indicate that headline inflation is unlikely to approach the ECB’s target until 2025.