The positive data on the course of inflation in the Eurozone in April they appear to be “locking in” a rate cut by the European Central Bank when its governing board meets on June 6 on monetary policy. In the same direction, the data for an increase in the Eurozone GDP by 0.3% in the first quarter of 2024 compared to the fourth quarter of 2023, which, although better than expected, confirmed the weak dynamics of the economy .

According to her data Eurostat, the headline consumer price index rose 2.4% year-on-year last month, the same as it did in March, remaining close to the ECB’s medium-term inflation target of 2%. It is considered particularly important that increases in the prices of services, which are more affected by wage increases as they are the main cost for businesses in the sector, decreased to 3.7% from 4% that had been “stuck” in the previous five months. This de-escalation resulted in core inflation falling to 2.7% from 2.9% in March, a measure that excludes volatile energy and food prices and is therefore considered to better reflect inflation dynamics .

The ECB has long signaled its concern about the development of service prices, so the fact that they have eased has boosted its officials’ confidence that its inflation target, which is a condition for cutting interest rates, will be met. Its chief economist, Philip Lane, who also makes recommendations to the board on interest rates, made this clear in an interview he gave earlier this week. Asked if interest rates would be cut in June or if there was room for some surprise in the sense of not cutting them, Lane hinted that the ECB would move next month to its first interest rate cut in many years unless there is a spectacular reversal in the path of inflation in June.

“What we said in April was basically that if our level of confidence improved in the overall return of inflation to our target, it would be appropriate to cut interest rates from the current level,” he said, adding: “There are still a few weeks until the June meeting , but the April figures are important. Both the first estimate of Eurozone inflation and the Q1 GDP data improve my confidence that inflation will return to target in time. So today, my personal confidence level is improved compared to our April meeting. But of course we will have more data between now and June.”

Elaborating on his thinking, Lane said that “last week’s data (inflation and GDP) was a big part of the information we expected to see. We will, however, have inflation data for one more month (in May) when we meet in June. And we’ll also have more information on wage dynamics. There is no need to make overly categorical statements. Let’s look at this weeks new data.”

Lane made it clear that now that the battle against inflation appears to have been decided, there should be no delay in cutting interest rates as their high level – at 4.5% for ECB lending and 4% for accepting deposits from it – has an obvious negative impact on investment and therefore on the growth of the Eurozone economy.

For the same reason, i.e. to support its faltering economy, the Swedish central bank Riksbank It cut its key interest rate to 3.75% from 4% last week and signaled the possibility of two more cuts in the second half of the year. Sweden was the second major economy, after Switzerland, to cut interest rates, ahead of a similar move by the US central bank (Fed), which may be delayed as the decline in US inflation has stalled in recent months. amid conditions of significant growth of its economy. “Inflation is approaching target, while economic activity is weak. The Riksbank may therefore ease monetary policy,” the central bank said in a statement.

Also, the Bank of EnglandIt kept its key rate steady at 5.25% on Thursday, but moved closer to a cut, with governor Andrew Bailey suggesting there could be more cuts this year than the two the market is discounting. .

Also of interest is Lane’s position that if the Fed keeps interest rates high for a longer period of time, this is not particularly likely to prevent further interest rate cuts by the ECB after the summer. “The US economy and US interest rates affect the Eurozone in different ways and essentially these different mechanisms work in opposite directions. Some are looking at the possibility of a devaluation of the euro against the dollar (ie: if the ECB cuts interest rates while the Fed keeps them steady). However, on the other hand, if the US bond market offers high yields, this will put upward pressure on European bond yields as well, which would basically have the opposite effect (on inflation) of the euro falling.”