The European Central Bank (ECB) has been cautious about making any drastic moves regarding inflation in the euro area, despite several months of a continuous decline. Financial markets and central banks are signaling a change in interest rates, but the exact timing and scope of these changes in 2024 remain uncertain.
Recently, the Swiss National Bank (SNB) took the lead among major central banks by lowering its key interest rate from 1.75 to 1.5 percent. However, other central banks such as the US Federal Reserve (Fed) and the ECB have not followed suit. The ECB kept its key interest rates steady at its last meeting, but reports suggest that there may be a potential reduction of 0.25 percentage points at the next meeting in June – this would be the first interest rate cut since September 2019.
Inflation in the eurozone dropped from 2.6 to 2.4 percent in March, nearing the ECB’s target of 2 percent. Energy prices saw a significant decrease while service inflation and prices for food, alcohol, and tobacco remained strong. Core inflation, excluding volatile prices, also fell slightly but remains above the ECB’s target.
Despite falling inflation rates, central banks like the ECB and Fed are treading carefully to avoid premature interest rate cuts due to potential wage-price spirals and other inflationary factors. Analysts caution against hasty decisions in light of high wage pressures and changing economic conditions around the world.
