Jamie Spencer
March data fuels speculation of April policy shift
Eurozone inflation slowed for the second consecutive month in March, coming in at 2.2%, down from 2.3% in February and reinforcing expectations that the European Central Bank (ECB) will lower interest rates at its upcoming meeting.
The annual inflation rate remains slightly above the ECB’s medium-term target of 2%, but policymakers believe the recent uptick in prices since autumn is transitory. Core inflation, which strips out volatile energy and food prices, declined to 2.4%—the lowest level since early 2022.
Services inflation hits three-year low
Of particular note was the fall in annual services inflation to 3.4%, down from 3.7% the previous month. This is the lowest reading in nearly three years and a key indicator for ECB officials closely monitoring inflationary pressures.
Despite these improvements, concerns over rising geopolitical tensions and trade frictions—particularly those triggered by U.S. President Donald Trump’s tariff agenda—have prompted the ECB to proceed cautiously. Nevertheless, the central bank has already implemented six rate cuts since last summer, with its main rate currently at 2.5%.
Markets eye April rate move
Economists are increasingly confident another rate cut is imminent. Riccardo Marcelli Fabiani of Oxford Economics described March’s inflation print as “favourable” and said it supports further easing at the ECB’s April 17 meeting. Traders in swaps markets are now pricing in a 75% chance of a 25 basis-point cut.
Pooja Kumra of TD Securities noted the drop in services inflation as a compelling reason to proceed with the April cut. However, she warned that a trade war could complicate matters, with “Trump-led inflation ticking up not only for the US but also for Europe.”
Labor market remains strong
Additional data from Eurostat showed the Eurozone unemployment rate edged down to 6.1% in February—a record low—further underscoring the region’s economic resilience. Melanie Debono of Pantheon Macroeconomics described the figures as a sign of a “resilient labour market.”
The euro remained largely unchanged after the data release, holding at $1.082 against the U.S. dollar.
