No April Fools: March Eurozone Inflation drops as anticipated

Euro area headline flash inflation registered at 2 . 2 % Y/Y in March, down from 2.3% in February, in line with market expectations . Core inflation eased for the second month in a row to 2,4 % from 2.6%. Services inflation experienced a new decline to 3,4 % from 3.7%, lowest since June 2022 . Inflation for non-energy industrial goods remained unchanged at + 0.6 %, while energy prices dropped to -0.7 % from 0.2%, notably due to base effects (oil prices: €69.1/bl in March 2025 vs. €81.0/bl in March 2024). Inflation was in March below 2% in five -euro area countries, including France (at 0.9%, the lowest rate in the euro area). However, it remains close to or above 3% in nine countries, including Belgium, the Netherlands, and Austria , which presents a clear challenge for the ECB. Germany : German HICP was down to 2.3% in March from 2.6% in February , below consensus expectations of 2. 4 %. Core inflation was down to 2.5% from 2.7% with a strong easing in se rvices prices to 3.4% from 3.8%. Energy prices decreased by -2.8 % after -1.6% in February. France : French HICP remained unchanged at 0.9% in March, slightly below consensus expectations (consensus: 1.1%). Services inflation was slightly up to 2.3% from 2.2% , while NEIG prices decreased by -0.2% from 0.0%. Energy prices were down -6.2% Y/Y from 5.8%. French HICP inflation will remain close or below 1% until August 2025 according to our forecasts. Italy : H ICP increased by +2.1% in March, from +1.7% in February (consensus: +1.8%), mainly due to the prices of non-regulated energy products (from -1.9% to +1.3% M/M ). National core inflation remained stable at +1.8%, according to Istat. After a slight decrease in February, services inflation remained stable at +2.4% in March. Spain : Spanish HICP dropped in March from +2.9% to +2.2%, sharply below consensus expectation (+2.6%). According to preliminary estimations from the national statistical office, this is mainly due to the decline in electricity prices. National core inflation slightly decreased by -0.2 pp , to +2.0%. The March inflation print brings some relief to the ECB, especially regarding the new easing in services prices . W e expect euro area inflation to continue eas ing in the coming months, with headline inflation back at 2% in May. We think this will be enough for a new 25 bps ECB rate cut in April and another one in June. However , we acknowledge that the most important "data point" for the governing council will be the "liberation day". Tariffs - especially in case of retaliatory measures - will increase inflation and will thus raise some concerns at the ECB.