On April 23, 2024, people were seen walking the streets of Montmartre, Paris, France. The latest figures show that price rises in the euro area remained steady at 2.4% in April and the economy returned to growth in the first quarter. Headline inflation of 2.4% was in line with economists’ forecasts, with a monthly inflation of 0.6%. Core inflation, which excludes certain components like energy, food, alcohol, and tobacco, decreased to 2.7% from 2.9% in March. The impact of lower energy prices moderated further at -0.6% compared to -1.8% in March.
Gross domestic product (GDP) saw a 0.3% increase in the first three months of the year, slightly surpassing economist expectations. However, GDP for the fourth quarter of 2023 was revised from no growth to a 0.1% contraction, indicating a technical recession in the euro zone in the second half of the previous year.
Market expectations are growing for the European Central Bank (ECB) to begin cutting interest rates at its upcoming monetary policy meeting on June 6. Money market pricing suggests a nearly 70% probability of a rate cut in June, with even higher expectations for cuts in July or September.
Several ECB members have indicated to CNBC that they anticipate an interest rate reduction in June to counter a potential slowdown in the euro zone economy due to risks from oil prices and Middle East volatility.
Analysts at BNP Paribas expect the headline rate to remain stable primarily because of higher crude oil prices but anticipate that this outcome will support a rate cut in June.
The outlook for rates beyond June remains uncertain as mentioned by BNP Paribas before the latest inflation data was published.
In summary, while price rises and economic growth have been steady so far this year, market expectations suggest that an interest rate cut is imminent due to rising concerns over global economic conditions such as oil prices and geopolitical instability.
