Irish Inflation Eases to 6.3% Annually, but France and Spain’s Price Hikes May Rattle ECB’s Upcoming Decision

"Inflation in Ireland sees slight decrease in April, but concerns remain as France and Spain experience consumer-price gains ahead of ECB meeting"

Annual Inflation in Ireland Cools to 6.3% in April

The pace of annual Irish inflation cooled to 6.3% in April, according to the latest figures from the Central Statistics Office. However, both France and Spain recorded consumer-price gains which may spook the European Central Bank ahead of its planned monetary policy meeting in May when it will hike interest rates again. The figures showed energy prices, which have been a menace for Irish households since Russia invaded Ukraine and put pressure on the market, decreased 1.3% in the month but climbed 12.1% since last year. The recent fall in energy prices is likely driven by the drop in wholesale energy costs in March.

Meanwhile, shoppers witnessed a 0.5% increase in food prices in April and an annual increase of 13%. The annual rate of inflation has fallen from 7% in the 12 months to March but many households are still feeling the pinch. A separate Credit Union Consumer Sentiment Index published earlier this week suggested Ireland has a “two-track economy” in terms of the financial wellbeing of Irish consumers. Economist Austin Hughes said, “In the past year, there were significant increases at both ends of the spectrum-in the number of Irish consumers coping reasonably comfortably with their financial circumstances, but also in the number of financially stretched consumers who have reached the point where they would be entirely unable to manage a further financial mishap.”

The figures from the CSO are based on harmonised figures that make it easier to compare inflation rates across the eurozone by using the same basket of goods and services by way of comparison. The inflation figure for the euro area is expected shortly before the ECB introduces another rate hike on May 4 to try and drive down sticky inflation. Some have predicted policymakers will introduce a 25 basis point increase while other analysts have said a 50 basis points hike is still being tabled.

Despite the recent inflation figures, the European economy is doing better than expected even if core inflation is taking longer to slow, according to EU Economy Commissioner Paolo Gentiloni. “This is encouraging news, which shows the EU economy continues to show resilience against a challenging global backdrop,” Mr Gentiloni said.

Inflation is a key factor in the ECB’s monetary policy decisions, and policymakers are keen to keep inflation at a steady rate of just below 2%. With the recent inflation figures, it is expected that the ECB will introduce another rate hike on May 4 to try and drive down sticky inflation. However, the decision on how much to increase rates by is still being debated among analysts. Some predict a 25 basis point increase, while others argue for a 50 basis points hike.

The ECB’s monetary policy decisions have a significant impact on the eurozone economy, and the recent inflation figures from France and Spain may cause policymakers to take a more cautious approach. The ECB has already raised interest rates once this year, and another hike could cause further difficulties for households already struggling with rising prices. The next few weeks will be crucial in determining the ECB’s next move, and analysts will be watching closely to see how inflation figures develop across the eurozone.

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