Preliminary data from Eurostat shows that headline consumer prices in the Euro Zone rose to 7.0% on an annualized basis in April, in line with economists' predictions. The rise was mainly attributed to an increase in energy prices, which overcame the slip in March’s inflation due to lower energy costs. However, the surprising slowdown of core inflation to 5.6% dampened the overall picture, creating confusion for rate-setters in the region.
The European Central Bank (ECB) is set to hold its latest monetary policy meeting on Thursday, with expectations of a borrowing cost increase of either 25 or 50 basis points. The inflation data adds complexity to this decision, with analysts at ING stating that "the ECB doesn’t want to repeat the previous mistake of underestimating inflation and will therefore be willing to go too far, even if this eventually turns out to be a policy mistake."
Despite the slight disappointment in core inflation, the overall inflation rate remains high and signals continued pressure on the Euro Zone economy.
