German inflation fell in six key states last month, according to preliminary data released on Tuesday. The drop in inflation to 3.5% or below in March, compared to February, is seen as a positive development in the fight against rising prices.
The data from Germany comes ahead of the Eurozone inflation figures, which are expected to provide more insight into the trajectory of price increases. Economists are closely watching these figures as they anticipate the European Central Bank’s next interest rate decision in April.
Meanwhile, Chris Williamson, chief business economist at S&P Global Market Intelligence, believes that the latest Eurozone inflation figures support the growing consensus that the ECB will start cutting interest rates in June. He pointed to lower-than-expected consumer price inflation in France, Spain, and Italy, as well as declining inflation in key regions of Germany.
Williamson highlighted that lower inflation could lead to reduced wage negotiations, as workers have less grounds to demand higher pay. This, in turn, could create a cycle of lower inflation, which is favorable for the economy.
Additionally, Eurozone manufacturing activity took a deeper dive in March, contracting at a greater pace than the previous month. This marks the 21st consecutive month that activity has been below the 50 mark, indicating a prolonged period of contraction in the sector.
Overall, the data suggests a mixed outlook for the European economy, with some positive signs in the fight against inflation but challenges in the manufacturing sector. Investors and policymakers will be closely monitoring these developments in the coming months.