Eurozone Inflation Accelerates in April, Exceeding Preliminary Data

 Eurostat, the statistical office of the European Union (EU), announced on Wednesday that inflation in the eurozone accelerated in April, confirming the initial data that indicated a strong rise in prices among the 20 member countries. The final reading for the Harmonized Consumer Price Index (CPI) showed a year-on-year increase of 7% in April, compared to 6.9% in March. The CPI, excluding food and energy, rose by 7.3% year-on-year in April, slightly lower than the 7.5% recorded in March. On a monthly basis, the CPI dropped significantly to 0.6% in April, down from 0.9% in March, while the core CPI stood at 0.9%, lower than the previous value of 1.2%. Additionally, the narrower inflation gauge, which excludes alcohol and tobacco, declined from 5.7% in March to 5.6%, marking the first decrease since June last year.

Despite a slowdown in underlying price growth, which has been a focus for European Central Bank (ECB) policymakers in recent months, inflation in the key services sector continued to accelerate. This suggests that mounting wage pressures could keep inflation above the ECB's 2% target. It is estimated that there may be more rate hikes in the future, as it might take until 2025 for inflation to return to the target level. The path from 3% to 2% inflation, the "last mile," could be particularly challenging and may require another two years. Over the past two years, the eurozone inflation rate has consistently exceeded the ECB's 2% target. Since July last year, the ECB has already raised interest rates by 375 basis points in an effort to curb runaway price growth. Service sector inflation, primarily driven by labor costs, accelerated from 5.1% to 5.2%, confirming concerns among policymakers about the potential dangers of nominal wage growth. 

Despite rapid inflation, real wage levels are still declining, but low unemployment rates and a growing labor shortage, especially in the services sector, are pushing up nominal wages. The ECB has long stated that nominal wage growth of 3% would align with its inflation target, but this year's growth rate could be twice that. In recent months, despite a decrease in energy costs, both consumer and market-based inflation expectations have risen, indicating that inflation is now more deeply rooted than before, primarily driven by additions, services, and domestic demand. The ECB is set to convene its next meeting on June 15, where it is expected to signal another interest rate hike.

Overall, the information suggests that the eurozone is experiencing significant inflationary pressures, primarily driven by services and domestic demand. The ECB is likely to continue monitoring the situation closely and take necessary measures, such as interest rate adjustments, to manage inflation and bring it closer to the target level of 2%.