Data from the European Union’s statistics agency, Eurostat, showed that inflation in the 20 countries that use the euro slowed by the most on record to 6.9 percent in March, its lowest level in a year, as food costs continued to rise while energy prices fell, leading to a sharp turnaround after… Months of grueling hikes.
Consumer prices rose year-on-year by 6.9 percent in March after an 8.5 percent increase in February, indicating the biggest slowdown since Eurostat began collecting data in 1991.
Thus, inflation fell to its lowest level in a year since it peaked at 10.6 percent in October.
But food, alcohol and tobacco prices rose by a painful 15.4 percent, 15 percent faster than the previous month, in a sign that European consumers are still under pressure.
However, energy prices fell 0.9 percent – a surprising change in trend after rising at double-digit rates over the past year.
The Russian war in Ukraine led to an increase in the prices of natural gas used to heat homes and generate electricity, which led to an increase in inflation in general, but the recent reading indicates that the mild winter and European efforts to store and extract gas from sources outside Russia have paid off.
So-called core inflation, which excludes volatile food and energy prices, rose slightly to 5.7 percent from 5.6 percent the previous month. This number can give a better idea of whether inflation is entrenched in the economy in the long run.
Analysts polled by Archyde.com had expected annual inflation in the euro zone at 7.1 percent and core inflation at 5.7 percent.
After a record string of interest rate hikes, the ECB refrained from committing to further increases, saying this would depend on whether the current turmoil in the banking sector abates, and also on data including core inflation.
But several ECB policymakers, including chief economist Philip Lane, have recently said that further increases in borrowing costs are likely to be needed to bring inflation back to the central bank’s 2 percent target.