Joachim Nagel, the ECB governing council member and President of the Deutsche Bundesbank, said it was becoming increasingly likely that the ECB could begin lowering interest rates as early as the June meeting, given the gradual decline in inflation to the target level (2%). If this forecast is confirmed, the ECB will become the second major central bank (after the Swiss Central Bank) to begin easing monetary policy.
According to official data, consumer price growth slowed in February, confirming experts' forecasts. Meanwhile, core inflation fell to its lowest level since March 2022. The consumer price index rose by 2.6% per year after an increase by 2.8% per year in January. Meanwhile, on a monthly basis, the consumer price index rose by 0.6%, confirming economists' forecasts and offsetting the January drop (-0.4%). This was the sharpest price increase since April 2023. Eurostat reported that the core consumer price index - excluding energy, food, alcohol and tobacco - rose by 3.1% per year, as expected, after an increase by 3.3% per year in January. Core inflation has been declining for the 7th month in a row.
Markets now expect the ECB to cut interest rates by 89 basis points by the end of the year, with the first rate cut forecast in June or July. However, Nagel warned that the initial rate cut does not imply follow-up steps. "ECB plans to move meeting by meeting as fresh data comes in. We must be vigilant and cautious," Nagel said, adding that steady wage growth remains a cause for concern, which increases the risk that household income growth could keep prices under pressure.