Inflation rate in the euro area: no boost from domestic demand

Today’s flash estimate for April’s consumer prices showed an inflation rate of +1.2 per cent. This was -0.1 points lower than in the previous month. Energy prices in the consumer basket again increased somewhat more strongly, offsetting the weaker increase in prices for services. The pressure on inflation from the domestic economy remains more than moderate in the euro area despite the good economic situation. This is shown not least by the core rate, which excludes the more volatile price components for food and energy. In April it declined from +1.0 per cent to +0.7 per cent.

The oil price, which is important for the development of energy prices in general, increased by around +35 per cent year-on-year. The fact that the euro-dollar exchange rate increased at the same time by around +15 per cent compensated for part of the steep increase in energy prices. The price buoyancy of the other components remained moderate. After the upside distortions caused by the Easter break in March, service prices were less buoyant again in April. Prices for food and luxury goods also increased somewhat more strongly again.

At the country level consumer price inflation slackened in most cases, for example in Germany, Spain and Italy. Only in France did the inflation rate increase somewhat, reaching its highest level in over five years at +1.8 per cent. Here, the greatest boost also came from energy prices. The French core rate in April was +1.1 per cent.

The data published today fit our forecast picture. Price inflation for other goods and services, which was influenced by domestic economic effects in most cases, was weak. The greatest fluctuations were caused by energy prices and partly also by food prices. These two subcomponents in the euro area’s basket of goods and services are increasingly exposed to external influences such as global demand for raw materials or weather conditions. So they hardly reflect demand-induced price movements. The euro area is still a good way off the inflation rate climbing towards the 2 per cent mark as hoped for by the ECB.

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