The rate of inflation in the eurozone is once again gaining momentum. According to preliminary data, the annual rate is +1.9% in April and therefore again approaching the ECB’s target level of “close to, but below, 2%”. However, the figure for April is not an indication of growing price pressure in the currency union. Rather, the increase is attributable to the “Easter effect”, which is particularly reflected in the sharp rise in the core rate. Going forward, the price pressure is for the time being likely to be on a downward trend again as the year progresses, especially because the strong upswing in energy prices can be expected to slow down, provided that there are no unexpected hikes in the oil price. As a result, the pressure on the ECB to justify its actions is likely to fall for the moment. However, it is worth noting that the less volatile core rate of inflation has increased to 1.2%. If this trend were to continue, the ECB would quickly be compelled to explain why its monetary policy is not being adjusted in line with fundamental developments.
The preliminary data from Germany (+2.0%) and Spain (+2.6%) already provided an early indication that there would be a renewed rise in the rate of inflation in the eurozone, where the harmonised inflation rate came as a positive surprise for market participants. This was most presumably above all due to the “Easter effect”. Usually, service prices in the tourism and transport segments, in particular, become more expensive in the month of Easter. As Easter was in April this year and in March last year, there is some distortion in the year-on-year comparison of inflation, which had an unusually positive effect on inflation in April.
By contrast, in France, the service component of inflation even declined slightly. Among other factors, this is due to the after-effect of the winter sales, which meant that prices in the subsequent month of March were slightly overstated. This positive price pressure was probably corrected in April and counteracted the Easter effect. As a result, the harmonised inflation rate in April remained at +1.4%, the level reached in the previous month.
Has the limit been reached? It is probable that the turbulent inflation trend in the eurozone will have come to a provisional end in April. Various special effects, such as the rapid rise in the energy price component, temporary food price increases and the Easter effect, are now over. The EMU inflation rate should decline again over the next few months, provided that the oil price stays within the range seen in the past few months, and will for the time being edge away from the ECB target again.