Euro area April flash inflation: core inflation unexpectedly rose in April

Euro area headline flash inflation remained stable in April, at 2.2% Y/Y, slightly above market expectations. However, core inflation unexpectedly picked up to 2.7% from 2.4%, led by an increase in the services sector (3.9% from 3.5%, back to its January pace). Inflation for non-energy industrial goods remained unchanged at +0.6% for the third month in a row, while energy prices dropped again to -3.5% from -1.0% due to a sharp decrease in oil prices. Inflation increased markedly in the Netherlands (4.1% from 3.4% ) but the details are not available yet. This is too soon to say whether the increase in core inflation is only a bump in the road or not, but no doubt this will trigger some concerns at the ECB. ► Germany: Harmonized inflation slowed down to 2.2% Y/Y in April, down from 2.3% the previous month, slightly exceeding consensus expectations. This rise is likely due to a reacceleration in the services segment, with the national component increasing from 3.5% to 3.9% in April, while the energy component fell further from -2.8% in March to -5.4% (we can reasonably anticipate a decrease of a similar magnitude for the harmonized component). ► France: French April inflation came in at +0.8% Y/Y for both CPI and HICP (Consensus: +0.7%). Services inflation remained stable at 2.3% Y/Y as manufactured goods inflation (-0.2% Y/Y). Food prices increased by 1.2% Y/Y from 0.6% Y/Y in March. Energy prices were down by -7.9% Y/Y after -6.6% in March. On average, we expect French inflation to remain below 1% in 2025. ► Italy: according to preliminary estimate, harmonized inflation for April remained unchanged from March at 2.1% (consensus: 2.3%). With few details at this stage, the increase in national inflation was mainly due to rising prices of regulated energy products and transport services. Core inflation (national definition) increased to 2.1% from 1.7% in March. ► Spain: In April, HICP headline inflation remained stable at 2.2% Y/Y, above expectations of a slight decrease (2.0%). National core CPI increase to 2.4% from 2%, slightly above expectations. According to the INE, energy prices are down following the decrease in gas and electricity prices compared to April 2024. On the other hand, leisure and culture prices increased markedly. We anticipate a new 25 bps ECB rate cut in June in a context of low oil prices and a strong euro that will limit inflationary pressures. Beyond June, we continue to think that the most important "data point" for the governing council will be the information regarding US Tariffs and potential retaliatory measures