Eurozone inflation rises above expectations in April but ECB likely to remain on track for rate cut in June

Inflation in the Eurozone was unchanged at 2.2% in April, but above expectations for 2.1% rise.

Closely watched Core inflation, which excludes the most volatile food and energy components, rose to 2.7% last month from 2.4% in March and beat forecast for 2.5% increase.

Rise in services prices was behind the last rise in underlying inflation and countered anticipated positive impact from lower energy prices.

Although the prices pressures are higher than expected in April, The European Central Bank is likely to remain on track for another rate cut in the policy meeting in June, to boost protective measures against growing threats of a massive negative impact from a global trade war.

Markets bets are currently at 85% for rate cut on June 5 meeting and also anticipate one more cut by the end of the year, suggesting that the central bank will not pay much attention to higher than expected consumer prices, but will focus on boosting slow economic growth and reducing risk of a damage on the economy from potential escalation of trade conflict between the US and China.

On the other hand, ECB hawks would push for more cautious approach until clear signals that inflation reached its target levels, although notable change in policymakers’ rhetoric from expectations to bring inflation to 2% in 2026 to comments that target has already been reached, may give them more space to maneuver in the situation when the central bank faces two opposite and strong forces.