Eurozone interest rates unchanged, US PPI and jobs data mixed

Latest releases fuel expectations that rates could head lower in Europe sooner than the US.

11 April 2024

The European Central Bank (ECB) left their main refinancing rate at 4.5%, much as expected, and continued the mantra that ‘rates will remain sufficiently restrictive for as long as necessary’. There was no real reaction post the announcement but more interesting was the press conference where ECB President Christine Lagarde, when asked if a rate cut is to be expected in June, indicated without affirming that they will have a lot more data to help coalesce their view. She did acknowledge that some council members were confident enough already, so this was quite revealing. This represents an obvious different speed in the direction of travel compared to the Federal Reserve (Fed) – inflation in the eurozone is coming down in a more linear fashion than in the US and rates will move lower in the EU more quickly.

Hot on the heels of the surprise US CPI yesterday, today saw the prices of finished goods and services (PPI) coming in below expectations, at a 0.2% month-on-month rise for March versus the 0.3% expected. This does not immediately read across to the hotter 0.4% CPI when you think it would, so what gives? There may be a slight monthly lag in CPI to PPI but probably more explanatory is the fall in energy prices which on a net basis led to a -0.1% move in total final demand of goods prices. Services inflation on the other hand remains the stickier issue, rising 0.3% over the month and not until services inflation slows will we likely see a shift in the Fed’s messaging on rates.

US initial jobless claims showed 211k people filed for unemployment insurance over the last week, below estimates of 216k and close to the four-week average which stands at 214k. If you look further back, the obviousness of the strong jobs picture in the US is evident since the end of 2021 and while this figure is viewed as a lagging indicator to the current pulse of the economy, at this historically low level it neither indicates a recession or hard landing is imminent, nor that consumer demand is likely easing. The read through is that inflation could remain a sticky issue and the Fed might not be in any hurry to upset the applecart.