Euro-area inflation revised lower as ECB debates stimulus

BRUSSELS • Euro-area inflation accelerated less than initially estimated last month, a setback for European Central Bank (ECB) policymakers as they consider winding down unprecedented stimulus.

Consumer prices in the 19-country bloc rose just 1.3% in March from a year earlier, according the European Union’s statistical office. While that’s up from 1.1% the previous month, the reading falls short of a 1.4% initial estimate.

Core inflation, which strips out volatile components such as food and fuel, held at 1% for a third month. Bloomberg Economics (BE) noted that its supercore measure — which tracks domestically generated pressure — picked up to 1.2% from 1.1%. That’s the highest in four years.

Underlying inflation accelerated slightly in April. That’s good news for ECB.

While the move is too small for it to significantly shift the outlook for monetary policy, it will allow the Governing Council to continue moving toward the exit from its quantitative easing programme, said David Powell and Jamie Murray from BE.

A recent slowdown in economic data hasn’t yet eroded confidence among ECB officials, who will next set policy on April 26, that inflation will return gradually to their goal of close to but below 2%. At the same time, there are different views among rate setters about when and how to scale back an asset-purchase programme introduced more than three years ago to stoke price pressures.

While Germany’s Jens Weidmann and Estonia’s Ardo Hansson have expressed their preference for a faster exit, ECB executive board member Peter Praet is among those more cautious. He argued this week that an ample degree of stimulus remains necessary, given “subdued” inflation developments.

Policymakers must be “patient, persistent and prudent”, he also said.

Meanwhile, Germany’s public-sector workers and employers have agreed on a three-step series of wage hikes, providing the ECB with fresh evidence of inflation-boosting pay deals and averting the threat of more disruptive strikes.

Wages for 2.3 million workers in federal and local governments will rise by an annual 3.19% on average retroactive to March, by another 3.09% next April, and by a further 1.06% in March 2020, according to an agreement struck in Potsdam. The deal finishes at the end of August that year.

Greg Fuzesi, an economist at JPMorgan Chase & Co in London, said the accord showed German wage deals are in line with the forecast by the Bundesbank, which sees a gain of 2.75% for the whole of Europe’s biggest economy.

“If anything, they are stronger,” Fuzesi said in a note. “It is also encouraging that strong deals in the manufacturing sector were not one-offs, but that other sectors are also seeing a pickup in pay growth.”

ECB officials are watching German collective-bargaining talks closely for signs that price pressures are finally on the rise in the euro-area, allowing them to gradually remove monetary stimulus.

Germany’s IG Metall manufacturing industry union struck a deal with employers in February that boiled down to average annual wage increases of roughly 3.7% in 2018 and 4% in 2019.

The public-sector agreement means Germany will be spared more of the stoppages that severely disrupted flights at airports, including major hubs Frankfurt and Munich last week. Cologne and Bremen airports were also hit, as well as some local transport networks, city administrations, nursery schools, utilities and job centres.

Frank Bsirske, the chairman of the Ver.di union, called the outcome the “best result in many years”, while Interior Minister Horst Seehofer welcomed the prospect of 30 months of “social peace”. — Bloomberg