French and Spanish Inflation Undershoot, Backing ECB Cuts

The latest inflation data from France and Spain has sent a clear signal to the European Central Bank (ECB): it's time to cut interest rates. French consumer prices rose by a mere 0.9% year-over-year in March 2025, unchanged from February, while Spain saw its annual inflation rate drop to 2.2% from 2.9% the previous month. These figures suggest that price pressures are easing across the eurozone, paving the way for further monetary easing.

The ECB has already reduced its key rate to 2.5% this month, marking the sixth cut in nine months. But with inflation cooling and economic growth remaining weak, the central bank is likely to continue its dovish stance. The eurozone's economic woes are compounded by threats of U.S. tariffs on goods including metals and automobiles, adding to the uncertainty that the ECB must navigate.



The divergence in inflation rates between France and Spain can be attributed to several factors. In France, falling energy prices have kept the headline inflation rate in check, while services inflation has picked up pace. In Spain, core inflation has fallen, suggesting that underlying price pressures are easing. These dynamics highlight the complex nature of inflation in the eurozone and the need for a nuanced policy response from the ECB.

The ECB's Governing Council has indicated that it will continue to monitor inflation rates closely and adjust policy as needed. This suggests that future policy decisions will be data-driven and responsive to changes in economic conditions. However, the extent and effect of U.S. tariffs remain unclear, adding to the uncertainty that the ECB must navigate.

Investors are widely expecting the ECB to cut interest rates again at its April meeting, according to data provided by LSEG Refinitiv. This expectation is based on the cooling inflation data and the ECB's historical actions in response to similar economic conditions. The ECB's monetary policy decisions are published in a press release at 14:15 CET on the day of the Governing Council monetary policy meeting, and the bank remains data-driven, emphasizing a cautious approach to ensuring inflation stabilizes at its 2% target.

In conclusion, the recent inflation data from France and Spain provides a strong case for further interest rate cuts by the ECB. While the economic outlook remains uncertain, the central bank's data-driven approach and commitment to price stability suggest that it will continue to act in the best interests of the eurozone economy. Investors should brace for further monetary easing in the coming months, as the ECB seeks to support economic growth and maintain price stability.