Downside surprise in euro area March CPI

Euro area consumer prices surprised to the downside last month amid broad-based declines, although some economists were expecting inflation to bounce back during the following month.

According to a preliminary reading from Eurostat, the year-on-year rate of increase in the Eurozone's consumer price index slipped from 1.5% to 1.4%.

Economists had expected the headline rate of CPI to be unchanged at the prior month level of 1.5%.

The 'core' rate of CPI, which excludes food, energy and alcohol and tobacco prices, also declined from one month to the next, from 1.0% to 0.8% (consensus: 0.9%).

Prices were lower almost across the board, with the rate of increase in those for processed food, alcohol and tobacco slipping from 2.1% to 2.0% and that for unprocessed food from 2.9% to 1.2%.

The rate of increase in prices of non-energy industrial goods also cooled from 0.4% to 0.2% and that for services from 1.4% to 1.1%.

Energy prices were the exception, rising by 5.3% after an advance of 0.4% in the month before.

In a reaction note sent to clients, Claus Vistesen at Pantheon Macroeconomics attributed the decline in core inflation to the impact from Easter, saying he was "fairly confident" that package holiday prices and airfares slumped, depressing services inflation by three tenths of a percentage point to 1.1%, with lower prices for clothing and shoes likely accounting for the drop in non-energy goods prices.

"We think both will rebound next month, driving the core rate up to 1.4-to-1.5%. It will then fall back in May, and we’re sticking to our call that it will reach about 1.3% at the end of the year."