In April 2025, euro area inflation held steady at 2.2 percent, maintaining the same rate as March and slightly below the 2.4 percent observed a year earlier. This relative stability suggests that inflationary pressures are easing modestly but remain present across core sectors. Services were the dominant driver, contributing a substantial 1.80 percentage points (pp) to the annual rate, reflecting persistent cost pressures in labour-intensive industries.

Food, alcohol, and tobacco added 0.57 points, underscoring continued volatility in essential consumer goods. Non-energy industrial goods made a modest impact (0.15 pp), suggesting mild supply-side inflation. Notably, energy prices exerted a deflationary pull (minus 0.35 pp), helping to offset rising prices elsewhere. This subdued energy effect likely reflects global commodity trends and base effects from earlier price surges. The overall picture points to an inflation profile shaped less by external shocks and more by underlying domestic demand, particularly in services.

Among the top four economies in the area, inflation slightly fell in Germany (2.2 percent after 2.3 percent) and in Italy (2.0 percent after 2.1 percent) but remained steady in Spain (2.2 percent after 2.2 percent) and France (0.9 percent after 0.9 percent).

This composition may influence the European Central Bank's next monetary policy steps, as headline inflation remains close to target but with a strong services-led core component that could warrant cautious attention. This latest update takes the RPI to 18 and the RPI-P to 8, meaning that economic activities are ahead of expectations within the euro area.

Forecasters expect no revision from the flash 2.2 percent on year and no change at 2.7 percent for narrow core.

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.

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.