Europe’s Inflation Drops to 2.4%, Boosting ECB Rate Cut Hopes

weak economic activity is limiting the pass-through of higher production costs to consumers. While purchasing power has improved, economic uncertainty is keeping the savings rate high and slowing consumption.

The eurozone is expected to gradually emerge from stagnation throughout the year, driven by recovering domestic demand, improving purchasing power, and lower interest rates. However, geopolitical uncertainty continues to cast doubt on inflation’s trajectory.

ECB Rate Cut Outlook

The European Central Bank (ECB) faces the challenge of determining how far to cut rates. While some Governing Council members warn of the risks of excessive easing, the recent slowdown in inflation strengthens the case that price pressures are easing.

The ECB is expected to announce a new 0.25 percentage point rate cut this Thursday, alongside a deeper debate on the optimal level of interest rates going forward.

Since June last year, the ECB has lowered rates five times, making it the first major central bank to begin a cutting cycle. However, with inflation rebounding from 1.8% at the end of last year to 2.5% now, concerns are growing about the limited room for further cuts.