Inflation in Europe rose again in April, interrupting a series of five consecutive monthly declines, bad news that should encourage the European Central Bank to continue its interest rate hikes at the risk of slowing the economy. The increase in consumer prices in the euro zone accelerated slightly, to 7% in April after 6.9% in March, Eurostat announced on Tuesday. The figure surprised Factset and Bloomberg analysts who expected stagnation at 6.9%.
“This is a clear invitation for the ECB to continue to raise interest rates,” said Carsten Brzeski, economist for ING bank. He expects an increase of 25 basis points at the meeting of the institution scheduled for Thursday in Frankfurt. Others are even anticipating 50 basis points, like Andrew Kenningham for Capital Economics.
By raising rates, central bankers reduce demand for credit and therefore investment and consumption by households and businesses alike, with the effect of slowing growth. However, this already pales in Europe. Eurozone gross domestic product (GDP) grew by just 0.1% from January to March, quarter on quarter, after stalling (0.0%) in the last three months of 2022, figures released on Friday showed. by the European Statistical Office. The ECB has raised rates by 3.50 percentage points since July 2022 in an unprecedented campaign of monetary tightening.
She has little choice. Inflation remains well above its target of 2% and continues to worry politicians faced with protests from public opinion whose purchasing power is being reduced month after month. “Even if inflation has generally fallen (since October) and will continue to fall, there is no respite yet,” commented Carsten Brzeski. The peak was reached in October, at 10.6%, after a year and a half of uninterrupted rise, accelerated by the war in Ukraine. But the decline recorded from November to March, thanks to the lull in energy prices, remains insufficient. The continued decline, which is expected over the next few months, could prove to be very slow.
In April, the consumer price index was driven by a rebound in energy prices, up 2.5% year on year (mainly due to fuel), after a decline of 0.9% in March. This is a “temporary rebound” and the energy sector should return to negative territory “in the coming months”, according to Andrew Kenningham. Inflation was also fueled in April by a slight acceleration in the prices of services, up 5.2%, or 0.1 point more than the previous month.
The main contribution to the rise in prices came from food (including alcohol and tobacco), the prices of which soared again by 13.6% in April in the euro zone, still registering a slowdown compared to March (15.5%). Although also down by 0.4 points compared to March, the prices of industrial goods remained sharply up by 6.2% in April. Among the twenty countries sharing the single currency, Luxembourg (2.7%) and Belgium (3.3%) experienced the lowest inflation rate. Inflation rebounded by 0.2 points in France, to 6.9% in April. It does better than Germany (7.6%) and Italy (8.8%), but less well than Spain (3.8%). The highest rates were again recorded in the Baltic countries: Estonia (13.2%), Lithuania (13.3%) and Latvia (15%).