Eurozone Inflation Steady at 2.2% Despite Trade Tensions

According to the flash reading released on Friday, Eurozone inflation remained unchanged at 2.2% in April, despite the challenges posed by US President Donald Trump’s trade war. This figure slightly exceeded the 2.1% year-on-year forecast from economists surveyed by Reuters.

Core Inflation Shows Upward Pressure

While headline inflation held steady, underlying inflationary pressures appeared to increase. Core inflation in the currency bloc, which excludes volatile items like food, energy, alcohol, and tobacco, jumped to 2.7%, up from 2.4% in March and higher than the 2.5% anticipated by economists.

Services inflation, a metric closely monitored by the European Central Bank (ECB), also rose significantly to 3.9%, increasing from 3.5% in the previous month. This uptick could potentially influence some policymakers’ decisions regarding future rate adjustments.

ECB Rate Cut Expectations

The ECB has implemented three interest rate cuts this year, marking six consecutive reductions, with market expectations pointing to two additional cuts before the end of 2025.

Economic analysts currently see more than an 80% probability of another rate cut in June, with at least one more reduction anticipated before year-end. These moves would potentially lower the ECB’s deposit rate to 1.75% or below.

Expert Analysis

Franziska Palmas, senior Europe economist at consultancy Capital Economics, offered reassurance regarding the inflation data: “April’s rise in services inflation is unlikely to worry ECB officials too much as it was probably driven mainly by Easter timing effects.”

“We think services inflation will start falling again in the coming months and that US tariffs will prove disinflationary for the euro-zone, paving the way for two more rate cuts this year,” Palmas added.

Labor Market Remains Stable

The inflation report coincided with the release of eurozone unemployment data, which showed the rate holding steady at 6.2% in March, unchanged from the revised February figure. The youth unemployment rate showed slight improvement, dropping to 14.2% from 14.3% in the previous month.

These indicators suggest the European economy is maintaining relative stability despite external pressures from trade tensions and global economic uncertainties.