EU inflation slides down to 2.6%

(CN) — Inflation remains tightly tied to costs of energy in the European Union. While dependence on Russian oil largely drove inflation to record highs in 2021, a diversified portfolio continues to ease energy costs, and with it inflation.

The average rate of inflation across the European Union slid down to 2.6% in March according to data published by Eurostat on Wednesday. That is nearly four points lower than the previous year, and just above the European Central Bank’s 2% target.

In a speech delivered at the International Research Forum on Monetary Policy in Washington, Isabel Schnabel, board member for the European Central Bank praised the institution's inflation forecast targeting.

After decades of reliable inflation forecasting, Schnabel said the pandemic threw many economic measurements off-kilter — momentarily.

"Perhaps the most important [lesson] is that the post-pandemic surge in inflation has validated rather than refuted the inflation targeting framework,” Schnabel said. “Despite inflation often reaching double-digit levels, long-term inflation expectations have remained broadly anchored around 2% across advanced economies.”

Adjusting monetary policy to target 2% inflation helped stabilize the system, Schnabel explained, though future policy must adapt to the risks that come from relying too heavily on future projections.

Each month, Eurostat releases monthly inflationary predictions as well as post-monthly measurements.

According to Wednesday’s report, inflation dropped from nearly 7% in March 2023 down to 2.6% last month.

Lithuania, Finland and Denmark recorded the lowest annual inflation rates, with increases in each member state below 1%.

At 6.7%, Romania reported the highest annual inflation rate in the EU, followed by Croatia, Estonia and Austria, all above 4%.

Services were the greatest contributor to inflation in March, with a year-over-year rate of 4%.

EU economists attributed decreases in inflation to energy, although unprocessed food costs also fell.

Along with decreasing inflation EU researchers are tracking a historic high in production in services and economic sentiment lagging below average despite recent gains.

"The rise in March was driven by improved confidence among retailers, consumers and, to a lesser extent, services and industry managers, while confidence remained stable in construction,” researchers explained in a commentary. “Despite this positive shift, the European Commission’s Economic Sentiment Indicator still remains below its long-term average."

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