Investment Institute
Market Alerts

Inflation: Getting more confidence to deliver rate cut in June

  • 03 April 2024 (3 min read)
Euro area HICP headline and core inflation respectively came at 2.4% yoy and 2.9% in March, both 0.2 point below February levels.
Inflationary pressures within core are heterogeneous with another decline in non-industrial energy goods inflation (1.1% yoy; -0.5 point) while services inflation is sticky at 4% yoy for the fifth consecutive month.
Services inflation was (again) strong in March but we are confident it will decline in coming months. It will be very gradual until the summer but should ease faster thereafter.
Our long-held view of a first ECB rate cut in June is reinforced.

Euro area HICP headline inflation came at 2.4% yoy in March, decelerating by 0.2 point from February (AXA IM and Consensus was at 2.6%). Core HICP inflation was also lower at 2.9% yoy (AXA IM: 3.1%; Consensus: 3%). 

Within core inflation, non-energy industrial goods came at 1.1% yoy, below our forecast (1.6%). We had anticipated a soft rebound in clothes prices after sales period but it has been even softer (only proxied by Italian data at this stage). More broadly, we are not seeing any pressure from supply disruption that occurred in the Red Sea. 

Services prices came at 4.0% yoy, the same level for the fifth consecutive month and in line with our estimate. Despite a miss on French services inflation that surprised on the downside, it has been compensated by stronger services inflation elsewhere. We are awaiting final estimates published by Eurostat on 17 April to better isolate the impact of Easter but preliminary details available in Italy, Belgium and Landers in Germany are showing that the effect was probably softer than initially planned. But that means other services stayed strong. We believe the upside surprise on services inflation excluding items impacted by Easter is marginal and does not represent a threat for near term trajectory. 

Food, alcohol and tobacco inflation decelerated again and reached 2.7% yoy (from 3.9% in February), in line with our forecast. Energy inflation came at -1.8% yoy (from -3.7% in February) while we were pencilling in something around -1.3%.

Looking forward, core disinflation will remain very gradual in the near term (excepted in April with the normalisation of Easter impact), but it should decelerate faster by the end of the summer as services prices should start to ease more markedly. It is consistent with latest European Commission surveys on selling price expectations which signalled less people anticipating higher prices in March than in February. We would need to see some confirmation of this but it is usually a good proxy of underlying price pressure in 3 months horizon. We have core inflation landing at 2% in Q1 2025.

We believe risks remain tilted to the upside. In the near term, energy prices can fuel a rebound in inflation while services inflation are yet to engage in disinflation phase. On energy prices, the timing of any rises would matter as the impact would be different if it occurs now (with core inflation just below 3%) or in 6 months (core forecasted at around 2.3%). 

Our long-held view of a first ECB rate cut in June is reinforced, with decelerating headline and core inflation. Even if the Fed were to postpone its first cut to July, as currently priced by the market (AXA IM baseline still has a 25-bps cut in June), we think conditions are aligning for a start of the easing cycle in the euro area next June with tamed inflation pressures (also on forward looking basis) going hand in hand with anaemic growth. Today's data should also help reinforce the consensus formation within the Governing Council.


    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.

    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    © AXA Investment Managers 2024. All rights reserved

    Are you a Professional Investor ?

    This website is available in English only and directed at professional, institutional or qualified investors. It is not suitable for retail investors. As such, some of the funds, products and services described on this website are not available for retail investors under the MiFID II (Directive 2014/65/UE). By pressing accept you confirm that you are a professional investor and agree to AXA Investment Managers' Legal Information and Terms of Use.