Eurozone's Core CPI Surged Unexpectedly in April: What Should the Central Bank Do Next?

According to Eurostat's preliminary estimates, the Consumer Price Index (CPI) in the eurozone rose 2.2% YoY in April this year, remaining stable compared to the previous reading, but exceeding economists' expectations of 2.1%. It increased 0.6% MoM, unchanged from the previous reading of 0.6% and above the expected 0.5%.

However, the core CPI, excluding prices of food, alcohol, tobacco, and energy, surged 2.7% YoY, up from the previous reading of 2.4% and reaching an eight-month high. It also rose 1.0% MoM compared to the previous month.

Among them, inflation in the services sector accelerated further, rising 3.9% YoY and 1.3% MoM. Prices of unprocessed food increased 4.9% YoY and 0.9% MoM. Prices of non-energy industrial goods rose 0.6% YoY. Meanwhile, energy prices fell 3.5% YoY.

Data released on the same day also included: the eurozone's unemployment rate in March was 6.2%, higher than the expected and previous reading of 6.1%, intensifying market concerns about the European economy.

Against the backdrop of uncertain global trade conditions and heightened unpredictability of US tariff threats, the newly released inflation data in the eurozone may cast doubt on the timing of the European Central Bank's (ECB) next interest rate cut.

Despite ECB officials expressing optimism about a June interest rate cut in recent remarks, this set of April inflation data, particularly the surge in core inflation, may change their tone.

Prior to this, ECB President Christine Lagarde stated that global inflation is expected to decline gradually. ECB Governing Council member François Villeroy de Galhau said that inflation in the eurozone is on a downward trajectory, leaving room for the ECB to gradually cut interest rates, and that there is no risk of recession in Europe.

ECB Vice President Luis de Guindos stated that risks have intensified amid exceptional uncertainty, warning of market volatility and calling for strict vigilance against crisis contagion. Additionally, ECB Governing Council member Martins Kazaks said that the interest rate path depends on inflation, and that there is significant uncertainty in the global economy.