■ According to the Flash estimate by Eurostat, the inflation rate in the Eurozone fell to 0.5% in March, a lowest since November 2009 and a new trough in the current inflation cycle (see chart). Note that a decline was widely expected compared to February but, with the inflation rate down by two tenth of a point, the figure was released on the weak side of expectations.
■ The main drivers for the decline in March were food and core prices. By contrast, energy prices recovered slightly (from -2.3% y/y to -2.1% y/y) after a sharp slowdown in February.
■ Core inflation fell to 0.8%, down from 1.0% in February. We know this is largely due to an Easter calendar effect: last year, Easter was in March. In 2014, Easter will fall in April, so we will have to wait until that date to record the usual temporary hikes in prices for travel, package holidays and other tourism services going with Easter holidays. A partial rebound will thus occur in April (we expect headline at 0.7% and core at 0.9% y/y).
■ With food prices and calendar effects driving, it is not surprising to see that the decline in the inflation rate was broad-based across countries. It fell by 0.1 pp in Germany (to 0.9%) and Italy (to 0.3%). In Spain, the (EU harmonized inflation) fell, by 0.3pp, in negative territory to -0.2%.
■ All in all, the main message is that, although a decline was expected, inflation came in once again lower than generally expected in March. For that reason, today’s figure could contribute to build a consensus for more action in the ECB’s governing Council (due to meet this week on Thursday). It may not be significant enough to trigger a decision, but, if such a move is already on the cards as suggested by recent comments from members of the Governing Council, it will “help”.
BY Frédérique CERISIER