Still, we think the economic environment is benign enough for a rate cut in June and expect the ECB to be data-dependent after that. Eurozone core inflation dropped in April from 2.9 to 2.7%, with services inflation moderating the most. The headline number was flat because food inflation accelerated from 2.6 to 2.8%, and energy prices dropped less quickly, from -1.8 to -0.6% compared to April last year.
With GDP growth faster than expected today, domestic demand is showing signs of recovery in the eurozone, which could make inflation more stubborn. Then again, a weak business survey for April showed that services inflation is expected to continue to moderate in the coming months. Overall, a more muddied picture on inflation is emerging as we get closer to the target of 2%. The European Central Bank is data-dependent.