Euro area inflation moderates in March, ECB to have to move very gradually on policy

Euro area inflation came in weaker than previously though in March. After downside revision to Italian inflation figures, the equivalent figures for the euro area as a whole also brought a downside surprise. The headline consumer price inflation for March was downwardly revised by 0.1 percentage point from the flash estimate to 1.3 percent year-on-year. But, to two decimal places, the change was much smaller, only 0.03 percentages point to 1.34 percent year-on-year.

The main components were kept unchanged and thus the core rate of inflation was affirmed at 1 percent year-on-year, which nevertheless had originally represented a downside surprise when the flash estimates were released. The cause of the downside surprise to the headline rate was a bit weaker food inflation, down 0.1 point from the earlier estimate to 2.1 percent year-on-year.

Therefore, the revision should not be a cause for great worry for the ECB. But today’s data again provide a reminder of the softness of underlying pressures in the euro area. The core inflation rate has oscillated in the 0.9 percent to 1.2 percent year-on-year range in the past 12 months and it would not be surprising if it does not rise above the top end of that range this year, stated Daiwa Capital Market Research in a report.

“This subdued inflation outlook means that the ECB is going to have to move only very gradually on policy”, added Daiwa Capital Market Research.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bullish at 67.8075, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 7.76536. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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