| Consensus | Actual | Previous | |
|---|---|---|---|
| HICP - Y/Y | 2.5% | 2.4% | 2.6% |
| Narrow Core - Y/Y | 3.0% | 2.9% | 3.1% |
Highlights
Inflation provisionally fell again in March. A 0.8 percent monthly rise in the flash HICP put the annual rate at 2.4 percent, down from February's final 2.6 percent and a tick below the market consensus. The latest reading matches the lowest mark since July 2021 and means that the headline rate is now just 0.4 percentage points above its medium-term target.
There was also good news on the core. The narrowest measure was down 0.2 percentage points at 2.9 percent, similarly a tick short of forecasts and its first sub-3 percent post since March 2022. Excluding just energy and unprocessed food, the rate also dropped 0.2 percentage points to 3.1 percent. However, elsewhere the picture was 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 (2.7 percent after 3.9 percent) subtracted again.
Regionally, headline inflation was lower in most member states, including France (2.4 percent after 3.2 percent) and Germany (2.3 percent after 2.7 percent). Both Italy (1.3 percent after 0.8 percent) and Spain (3.2 percent after 2.9 percent) recorded gains but the former is still below target.
The flash March data should leave the ECB happy enough but still wary. Headline and, more importantly, core inflation continue to decelerate but prices in services remain worryingly sticky and the rate well above target. This should ensure no change in key interest rates next week and will leave Governing Council members all the more keen to see some easing in the sector's inflation rate in the April and May data. Today's updates put the Eurozone RPI at 9 and the RPI-P at 24, meaning that a limited degree of outperformance by overall economic activity would be more significant but for the unexpected weakness of prices.
There was also good news on the core. The narrowest measure was down 0.2 percentage points at 2.9 percent, similarly a tick short of forecasts and its first sub-3 percent post since March 2022. Excluding just energy and unprocessed food, the rate also dropped 0.2 percentage points to 3.1 percent. However, elsewhere the picture was 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 (2.7 percent after 3.9 percent) subtracted again.
Regionally, headline inflation was lower in most member states, including France (2.4 percent after 3.2 percent) and Germany (2.3 percent after 2.7 percent). Both Italy (1.3 percent after 0.8 percent) and Spain (3.2 percent after 2.9 percent) recorded gains but the former is still below target.
The flash March data should leave the ECB happy enough but still wary. Headline and, more importantly, core inflation continue to decelerate but prices in services remain worryingly sticky and the rate well above target. This should ensure no change in key interest rates next week and will leave Governing Council members all the more keen to see some easing in the sector's inflation rate in the April and May data. Today's updates put the Eurozone RPI at 9 and the RPI-P at 24, meaning that a limited degree of outperformance by overall economic activity would be more significant but for the unexpected weakness of prices.
Market Consensus Before Announcement
Consensus for March's HICP flash is 2.5 percent and 3.0 percent for the narrow core. These would compare respectively with February's 2.6 and 3.1 percent, the former versus January's 2.8 percent and the latter versus 3.3 percent.
Definition
The flash harmonised index of consumer prices (HICP) provides an early estimate of the final HICP, but using just partial data. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Final data are released a round two weeks later. 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. Two of these are made available in the flash report amongst which financial markets normally concentrate upon the narrowest which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the Eurozone is the harmonized index of consumer prices (HICP) 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 Eurozone, 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.
