disinflation underway, but bumpy ride

There are signs of disinflation ongoing, but the base effects and the price volatility of energy probably make the rougher process. This is what we read in the analysis of Martin WolburgSenior Economist of Generali Investments underlining that “sentiment continued to improve Aprilsupporting our opinion that the economy will strengthen in the second quarter of 2024″.

Euro area: disinflation underway

With regard to the euro area – we read again – “we continue to see a strengthening of growth in the coming months and we will maintain ours growth forecast for 2024 of 0.6% year-on-year. In the coming months we will see that inflation will trend further downwardbut not without difficulty. We maintain our inflation forecast at 2.4% for 2024.”

but a bumpy ride

Overall, “we do not expect a significant impact on euro area inflation. Unless wage risks or sharp increases in energy prices materialize, we expect that the ECB's easing cycle will be unscathed. We continue to expect cuts of 100 basis points in 2024, but recognize a risk of only 75 basis points.”

Meanwhile, the scenario of a rate cut by the ECB in June is becoming increasingly concrete. At the meeting of the Governing Council of the European Central Bank (ECB) on 10 and 11 April “a large majority of members” agreed with chief economist Philip Lane's proposal keep the three key interest rates unchanged. Members agreed that “the latest information has largely confirmed experts' March projections, thus increasing their confidence that the disinflationary process is continuing. At the same time, important new data, including new staffing projections, will be released ahead of the June meeting, allowing the Governing Council to make a more comprehensive assessment.” We can read it in the minutes of the meeting published in recent days.

“It was considered plausible that the Board of Directors would have been capable of starting to ease monetary policy restrictions at the June meeting if further evidence received had confirmed the medium-term inflation outlook contained in the March projections,” it is underlined.

Overall, “a broad consensus emerged that members agreed that it was prudent to wait until the next meeting of monetary policy to see further evidence and gain sufficient confidence in a timely and sustained return of inflation to target.” Compared to the March forecast, no major surprises were observed that would justify action at the April meeting.

Overall, the members of the Governing Council believe that “i markets have understood the communication and reaction function of the ECB and are Be prepared for the possibility of a cut of rates at the June meeting, if the data confirm the current prospects”.