Euro Zone Inflation Stalls, Central Bank Considers Rate Cut: 'Path From Here Likely To Be Bumpy'

In April, inflation rates across Europe remained consistent at 2.4%, aligning with economists’ predictions, while the region experienced economic growth in the initial quarter of the year.

This stable inflation rate continues a trend below 3% for the seventh consecutive month, despite a brief increase in December, influenced by rising energy costs, CNBC reports.

Core inflation, which excludes volatile items like energy, food, alcohol, and tobacco, saw a slight decrease to 2.7% from March’s 2.9%. The influence of declining year-on-year energy prices also lessened, showing a decrease of 0.6%, improving from March’s 1.8% decline.

Meanwhile, the services sector, crucial to the European Central Bank’s (ECB) monitoring, experienced a deceleration in price increases to 3.7% from 4%. On the broader economic front, the euro zone’s GDP grew by 0.3% during the first quarter, surpassing expectations slightly. This follows a minor revision of the fourth quarter 2023 GDP from stable to a contraction of 0.1%, confirming a technical recession in the latter half of the previous year.

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The upcoming ECB monetary policy meeting is scheduled for June 6. Market expectations are increasingly leaning towards a potential rate cut. Current money market pricing indicates nearly a 70% likelihood of a rate decrease in June. There are even higher probabilities for reductions in July or September, according to LSEG data.

Several ECB voting members expressed to CNBC their anticipation of a rate cut in June to mitigate any excessive economic slowdown. They also noted concerns over oil price instability and Middle Eastern geopolitical tensions.

According to BNP Paribas economist Gerardo Martinez, the drop in services inflation marks a significant development, bolstering confidence in the likelihood of a June rate cut.

"With the path from here likely to be bumpy and growth data showing that the eurozone economy is gathering momentum, we think the path beyond June remains more uncertain and we continue to expect a gradual and cautious (quarterly) pace of easing from the ECB," he told CNBC.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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