With Inflation figures rising in some European countries, the long-term view on interest rates is becoming more blurred. The rate cut in June would not be in danger, but it could well be the only one for now.
Inflation continues to rise in Belgium, posting 3.37% in April. In Germany, the leading economic power in the euro zone, it stagnated over the past month: 2.2%. While specialists expected a decline. The European harmonized price index is up, at 2.4%, compared to 2.3% in March. Here too, it is more than the estimates.
“The disinflationary trend in Germany ended, as energy and food prices offset the moderating effects of transport and communications on inflation in April,” ING concluded in a report, noting that the figures show that inflation is resilient.
And German inflation is expected to continue to rise. For next month, ING economists even expect a figure of up to 3%. “In fact, over the coming months, inflation will be determined by two opposing factors: the still delayed impact of monetary policy tightening and, at the same time, less favorable base effects, frictions in the chain of “supply due to tensions in the Middle East as well as the cyclical improvement of the German economy,” they note.
Drop in June, but after?
Where it gets interesting is that German inflation has an impact on the ECB’s monetary policy. This rebound in inflation should not dissuade the Central Bank from lowering rates in June, estimates ING. The latter, predicted by the market for months, is almost set in stone. But in the longer term, the vision becomes blurred and it is difficult to predict when the next drop(s) could take place.
“The increase in headline inflation in Germany today reminds us how difficult it will be for the European Central Bank to bring inflation sustainably to 2%. Beyond June, the path forward for the Bank is far from clear. The recent re-acceleration of inflation in the United States will also have revived concerns about inflation in the Eurozone, at least among some ECB hawks. The recent increase in oil prices, as well as the weakening of the euro exchange rate, could easily push the ECB’s inflation projections for 2025 above 2%, weakening the arguments in favor of in favor of a reduction in rates beyond the June meeting”, describe the experts.
We will therefore have to wait for the data, from month to month, to see more clearly the trajectory of inflation and the ECB’s rate forecasts.
