AP – Europe’s energy crisis sparked by Ukraine’s invasion has eased. Inflation is way down from its painful double-digit peak. But there likely won’t be an interest rate cut at the European Central Bank’s (ECB) meeting yesterday, even as higher borrowing costs weigh on the stalled economy.
And the wait could be longer than many originally expected.
ECB President Christine Lagarde is likely to emphasise that the bank wants to see conclusive evidence that inflation figures will keep gliding down toward the bank’s goal of two per cent.
That is the read from analysts who follow the bank, and financial markets seem to be falling into line. While they had previously priced in a chance for a rate cut as early as April, those bets have faded and markets now are factoring in a quarter-point cut in June.
A similar situation is shaping up in the United States (US), where Federal Reserve (Fed) Chair Jerome Powell told Congress on Wednesday that the central bank needs more confidence inflation is under control before cutting rates. Fed officials have signaled three rate cuts this year, but Powell has given no indication when they might start.
In Europe, inflation was down to 2.6 per cent in February, well below its peak of 10.6 per cent in October 2022. But the consumer price index has been stuck between two per cent and three per cent for five months, raising concern that the last mile toward the ECB’s goal may be slower than hoped.
While the spikes in food and energy prices that helped drive the outbreak of inflation have eased, inflation has spread to services, a broad sector of the economy that includes everything from movie tickets and office cleaning to tuition and medical care.
Meanwhile, wages rose as workers started bargaining for higher pay to make up for lost purchasing power as inflation ballooned.
Prices for natural gas – which is used to power factories, heat homes and generate electricty – have fallen to around EUR24 (USD26) per megawatt hour, not much higher than levels seen before the invasion.
And oil prices have been flat as Saudi Arabia and other members of the OPEC+ coalition of oil producers maintain cuts to output that have only put a floor under prices.
