A pause in the most marked prices than expected. Expected stable, inflation finally slowed down in May in the euro zone, 1.9% for a year (-0.3 points compared to April). This figure, which marks a performance under the objective of 2% of the European Central Bank (ECB), opens the way to an eighth fall in the institutions of the institution that will make its decision on Thursday.
“It is quasi-corortain,” confirms BFM Business Éric Dor, director of Economic Studies of the IESEG School of Administration, believing that this good news about the inflation front accredited the prediction of analysts who have a new fall in the rate of a quarter of a point. This would bring back the BCE deposit rate, which refers to short -term monetary policies, 2%.
Fear of economic slowdown
An even more likely scenario since the underlying inflation, corrected by volatile energy and food prices, which refers to experts, also clearly decreased to 2.3% for a year, after 2.7% in April. This increase comes from services where the increase in consumer prices calmedly calmed down, with 3.2% for a year in May, against 4% of the previous month. This suggests that the growth of negotiated salaries in this sector tends to decrease.
The economist still issues a reserve on the relevance of the rate fall: the high heterogeneity of inflation between countries in the euro zone. For example, it amounts to 0.6% in France in May, but 2.8% in Belgium, 3.3% in Greece, 4.3% in Croatia or 4.6% in Estonia. It is not enough to question the expected flexibility on Thursday, concerns related to economic sadness in the euro zone that gradually had priority over fears related to price increase.
What predominates now, “is the fear of a great weakening of demand” and, therefore, growth due to the commercial war launched by Donald Trump, recalls Éric dor. The deceleration is already there according to the European Commission, which now has the growth in the euro zone of only 0.9% this year, while planning 1.3% six months ago. What convinces the ECB of reducing their rates to stimulate the activity.
And then?
Is the fall in the first rates on Thursday before a break? The manager of financial assets Ostrum Asset Magage awaits a new fall in July “to take the deposit rate to 1.75%.” Questioned by AFP, Jack Allen-Reynolds of Capital Economics Economist, also estimates that “inflation data in May are strengthening the probability of a new fall” at the next ECB meeting next month.
It should be said that the customs duties of US President Donald Trump imposed imports from all over the world, including Europe, paradoxically facilitated the battle of the Central Bank against inflation. “So far they have exerted a lower effect on inflation in the euro zone. The world prices of raw materials have decreased, the euro has been strengthened compared to the dollar, uncertainty has slowed economic activity,” he emphasizes with the AFP Bert Cochn, economist for ing.
And disinflation should continue, Riccardo Marcelli Fabiani also provides Oxford Economics. “Moderate oil prices and a higher euro (…) will lead to a drop in production and import costs. Salary deceleration should contribute to moderating the tenacious inflation of services,” according to him, and therefore encourage a new fall in rates.
Other experts have been less categorical in believing that the decrease in June could be the last in the current series to give the ECB time to take the time to see how the economy evolves in a context of commercial tensions. Because if the trend is for short -term deflation, it could be long -term inverse. For example, in the case of retaliation measures taken by Europe in the face of duties of Customs of Donald Trump. In more general terms, a process of demondialization and realignment of the value chains of the companies could also cause price increases.
“We are going to see the words of Christine Lagarde” on Thursday, explains Éric dor, while acknowledging that we should not be too illuminating about his speech, which should not allow him to know much more about the action of the ECB in the coming months.
Source: BFM TV
