Euro Area: Inflation rises in April from March
Latest reading: Harmonized consumer prices increased 3.1% in annual terms in April, following a 2.6% rise in the prior month. April’s reading was the strongest since September 2023, in line with expectations and exceeded the ECB’s 2.0% target. Energy prices surged at the sharpest pace since February 2023, with the closure of the Strait of Hormuz constricting supply.
Relative to the previous month’s data, there were higher price pressures for food, alcohol and tobacco (+2.5% in annual terms vs +2.4% in March), energy prices (+10.9% vs +5.1% in March) and non-energy industrial goods (+0.8% vs +0.5% in March). In contrast, price pressures reduced for services in April (+3.0% vs +3.2% in March).
Meanwhile, core consumer prices rose 2.2% on a year-on-year basis in April, following a 2.3% increase in the prior month.
Lastly, harmonized consumer prices increased 1.04% in April in month-on-month terms, following a 1.27% increase in the previous month.
Outlook: Since the Iran war broke out, our panelists have raised by nearly a percentage point their forecasts for inflation in Q2, Q3 and Q4 and the first quarter of next year. Inflation is now seen peaking at a nearly three-year high in Q2–Q4, before returning to near the ECB’s target in Q2 2027.
Panelist insight: ING’s Peter Vanden Houte said:
“Even though ECB President Christine Lagarde doesn’t like the word, the eurozone is facing a stagflation-like environment, albeit still mild at this stage. Inflation expectations are picking up: the three-year-ahead consumer inflation expectation climbed to 3% in March from 2.5% in February […]. The bottom line is that a rate hike in June is very likely and that a second one in September cannot be ruled out. That said, three rate hikes this year still seems a bridge too far to us.”
Nomura analysts commented:
“We expect indirect inflation effects to become more pronounced over the coming months, a view supported by [the April] European Commission survey that indicates firms intend to raise core goods prices and services prices over the coming months.”