| Consensus | Actual | Previous | |
|---|---|---|---|
| HICP - M/M | 0.8% | 0.8% | 0.6% |
| HICP - Y/Y | 2.4% | 2.4% | 2.6% |
| Narrow Core - M/M | 1.1% | 1.1% | 0.7% |
| Narrow Core - Y/Y | 2.9% | 2.9% | 3.1% |
Highlights
Inflation fell again in March. A 0.8 percent monthly rise in the final HICP was in line with the flash estimate and left the annual rate at 2.4 percent, down from February's final 2.6 percent and matching its lowest mark since July 2021. The headline rate remains just 0.4 percentage points above its medium-term target.
The core readings were similarly unrevised. The narrowest measure was down 0.2 percentage points at 2.9 percent for its first sub-3 percent post since March 2022 while, excluding just energy and unprocessed food, the rate also eased 0.2 percentage points to 3.1 percent. Still, elsewhere the picture remains more mixed. Hence, while inflation in non-energy industrial goods decreased from 1.6 percent to just 1.1 percent, the rate in services again held steady at 4.0 percent and has now been at that level for five consecutive months. Energy (minus 1.8 percent after minus 3.7 percent) provided another boost but food, alcohol and tobacco (2.6 percent after 3.9 percent) subtracted again.
Regionally, headline inflation was softer in most member states, including France (2.4 percent after 3.2 percent) and Germany (2.3 percent after 2.7 percent). Both Italy (1.2 percent after 0.8 percent) and Spain (3.3 percent after 2.9 percent) recorded gains but the former is still below target.
The final March data should reassure the ECB that inflation has started to behave itself and will leave financial markets convinced that key interest rate will be cut in June. However, that could yet change should the flash April data due at the end of the month throw a spanner in the works. Already some Governing Council members have issued warning noises about the possible upside risks to prices from the increasingly unstable situation in the Middle East. Today's update put the Eurozone RPI at minus 25 and the RPI-P at minus 15 showing that both overall economic activity and, albeit to a lesser extent, now also the real economy are falling somewhat short of forecasts.
The core readings were similarly unrevised. The narrowest measure was down 0.2 percentage points at 2.9 percent for its first sub-3 percent post since March 2022 while, excluding just energy and unprocessed food, the rate also eased 0.2 percentage points to 3.1 percent. Still, elsewhere the picture remains more mixed. Hence, while inflation in non-energy industrial goods decreased from 1.6 percent to just 1.1 percent, the rate in services again held steady at 4.0 percent and has now been at that level for five consecutive months. Energy (minus 1.8 percent after minus 3.7 percent) provided another boost but food, alcohol and tobacco (2.6 percent after 3.9 percent) subtracted again.
Regionally, headline inflation was softer in most member states, including France (2.4 percent after 3.2 percent) and Germany (2.3 percent after 2.7 percent). Both Italy (1.2 percent after 0.8 percent) and Spain (3.3 percent after 2.9 percent) recorded gains but the former is still below target.
The final March data should reassure the ECB that inflation has started to behave itself and will leave financial markets convinced that key interest rate will be cut in June. However, that could yet change should the flash April data due at the end of the month throw a spanner in the works. Already some Governing Council members have issued warning noises about the possible upside risks to prices from the increasingly unstable situation in the Middle East. Today's update put the Eurozone RPI at minus 25 and the RPI-P at minus 15 showing that both overall economic activity and, albeit to a lesser extent, now also the real economy are falling somewhat short of forecasts.
Market Consensus Before Announcement
No revisions are expected to the flash data, leaving a 2.4 percent headline inflation rate, down from February's final 2.6 percent, and a 2.9 percent narrow core, down from 3.1 percent.
Definition
The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
