The return of inflation pressure in the euro area confuses the interest reduction accounts

The inflation rate in the eurozone increased during April in terms of expectations, in a development that complicates the mission of the European Central Bank on reducing interest rates, especially with the emergence of the effects of customs duties in European consumer purchases, according to a report published by the Euronews Network.

Holding higher than expected … and ongoing monthly momentum

The initial data issued by the European Statistical Office showed that consumer prices have increased by 2.2% on an annual basis, which matches the reading of Mars, but it exceeds the expectations of 2.1%.
The monthly inflation rate increased by 0.6%, which reflects the survival of the price momentum without decline, indicating that the potential inflationary contraction has entered into a temporary stagnation.

Anxiety of basic inflation

What worries decision makers in the European Central Bank in particular is the high basic inflation – which excludes food and energy prices – as it jumped to 2.7% in April compared to 2.4% in March, clearly exceeding the consensus expectations of 2.5%.
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This is the first increase in the basic inflation since May 2024, primarily driven by the services sector.

Services sector presses monetary policy decisions

Service enlargement – the most important criterion in the European Central Bank’s evaluation of basic price pressure – increased to 3.9% on an annual basis, compared to 3.5% in March, while services prices increased monthly by 0.9%.
This was accompanied by a slight increase in food prices from 2.9% to 3.0%, which added escalating pressure on the total inflation rate, while energy prices fell by 3.5% on an annual basis, which contributed to restricting the total price increase.

Various inflation between the countries of the eurozone

Inflation rates recorded a big difference between the eurozone countries, as Estonia recorded the highest annual inflation rate at 4.4%, followed by the Netherlands and Latvia by 4.1% for each of them. While France recorded the lowest annual inflation rate at only 0.8%.

Markets are committed to calm, despite the shocking data

Although inflation numbers came higher than expected, the reaction of the financial markets was limited, as investors believe that these data may represent a temporary rise that does not change the direction of expected monetary policy.
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Expectations indicate that the European Central Bank is still on the track to reduce interest rates during the next June meeting, unless the conditions change suddenly.

Stability in bonds and currencies

The returns of German treasury bonds remained for two years – a major indicator of monetary policy expectations – stable at 1.73%, and the bond returns remained for ten years at 2.46% unchanged.
As for the euro, he ignored the data and continued its cohesion against the dollar at 1.1330, which reflects the confidence of the markets in the European Central ability to manage the situation.

European stocks continue to rise under the leadership of defense companies

Despite the challenges of inflation, European stock markets continued to rise, backed by strong profits and investor optimism, as the Eurostox 50 index increased by 0.8%, and the German DAX index rose by 1.8%, heading towards achieving gains for the eighth day in a row. The increase in the share of “Renmate”, a giant of defense industries, was led after it jumped by 3.6%, driven by increasing demand for military equipment.
The Shares of “ING” and Airbus within the Eurostox also achieved 50 strong altitudes of 5.2% and 5.1%, respectively, while the banking index in the euro area increased by 1.9%, in reference to the elasticity of morale despite the continuous monetary tightening fears.