Euro-Area April Inflation Quickens Less Than Estimated

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Euro-area consumer-price growth accelerated less than economists forecast in April, keeping pressure on the European Central Bank to consider unprecedented steps to avert the risk of deflation.

The annual inflation rate increased to 0.7 percent from 0.5 percent in March, the European Union’s statistics office in Luxembourg said today. That’s below the 0.8 percent median forecast in a Bloomberg News survey of 37 economists. The core inflation rate, which strips out volatile items such as energy, food, alcohol and tobacco, rose to 1 percent from 0.7 percent.

Today’s data may prove critical for ECB President Mario Draghi as he decides whether to embrace policies ranging from negative interest rates to quantitative easing. Draghi said in Amsterdam last week that the Frankfurt-based central bank may start broad-based asset purchases if the inflation outlook worsens.

“The lower-than-expected euro-zone inflation reading for April will fuel speculation of further monetary easing by the ECB at next’s week policy meeting,” said Martin van Vliet, senior euro economist at ING Groep NV in Amsterdam. “However, we doubt whether the ECB will pull the trigger just yet.”

Recent economic data will give the ECB food for thought. Inflation in Germany, the largest euro-area economy, missed estimates yesterday, and economic confidence unexpectedly fell in April. Euro-zone unemployment probably remained at 11.9 percent in March, just off a record, a separate Bloomberg survey shows.

‘Downward Impact’

ECB policy makers will also keep an eye on the strength of the euro as they prepare for their next meeting on May 8. If a rising exchange rate led to “a tightening of monetary conditions, a downward impact on inflation and potentially a threat to the ongoing recovery,” this would call for “policy action to maintain the current accommodative stance,” Draghi said in his Amsterdam speech.

The euro erased losses against the dollar after today’s data were published, trading at $1.3828 at 11:22 a.m. in Brussels, up 0.1 percent on the day. The Stoxx Europe 600 Index was down 0.2 percent to 337.56.

Today’s headline number “was below market consensus, but still not enough to push euro lower,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. “Some negatives were in the euro price after the lower than expected German print yesterday. In addition, core CPI came in line. All that may limit the scope for further euro underperformance.”

Energy Prices

Energy prices fell 1.2 percent in April after declining 2.1 percent the previous month, today’s data showed. Prices of alcohol, food and tobacco rose 0.7 percent, following a 1 percent increase in March. The cost of services increased 1.6 percent.

Commenting on the slowdown in inflation last month, Draghi said on April 3 that “the decrease reflects falls in the annual rates of change of the food, goods and services components, partly offset by a more moderate decline in energy prices.”

Frederik Ducrozet, an economist at Credit Agricole, said today’s data didn’t provide “a shocker, or a smoking gun, that the ECB would use to ease as soon as next week.” Ducrozet said he sticks by his forecast of a rate cut in June.

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