Euro Area: Harmonized inflation drops to lowest level since October 2024 in March
Latest reading: Harmonized inflation came in at 2.2% in March. The market had expected the print to remain at February’s 2.3%. The March inflation rate was the lowest since October 2024, prompted by lower energy prices and a decline in price pressures for services.
Annual average harmonized inflation remained at February’s 2.3% in March. Meanwhile, core inflation edged down to 2.4% in March from February’s 2.6%.
Finally, harmonized consumer prices increased 0.61% from the previous month in March, picking up from February’s 0.43% rise. March’s uptick was the sharpest monthly increase in a year.
Outlook: Our Consensus expects inflation in the Euro area to average near March levels in Q2–Q4, kept above the European Central Bank’s 2.0% target due to interest rate cuts and the recent weakening of the euro against the USD.
Meanwhile, retaliatory EU tariffs on the U.S. and a simmering global trade war could dent GDP growth and boost inflation, posing the ECB with a monetary policy dilemma and threatening the Euro area with a period of stagflation.
Panelist insight: ING’s Bert Colijn said:
“Uncertainty around the short-term outlook for inflation remains very high. US tariffs could result in deflationary pressures on the eurozone market as they depress exports and therefore growth. Besides that, it also results in more supply in the eurozone market as the US increases barriers to access. Retaliatory measures from the European Commission will likely have an upward effect on eurozone inflation, though, as they are essentially a domestic tax that gets introduced and will be paid for by consumers to some extent.”