Will eurozone inflation continue to slow?

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Eurozone inflation is forecast to slow slightly to 2.5 per cent when March data is published on Wednesday, providing something for both sides in the debate about how soon the European Central Bank should cut interest rates.

Most economists think consumer price growth will dip from 2.6 per cent the previous month. Smaller increases in goods and food prices are expected to be largely offset by higher oil prices and the impact of an earlier Easter period, which is expected to raise prices of package holidays and flights.

“Steady core inflation should reflect ongoing disinflation in goods and a temporary reacceleration in service prices due to the early timing of Easter, which is expected to fuel an increase in prices for holiday-related items,” UniCredit economists wrote in a note.

Deutsche Bank analysts predict the early timing of Easter will push up package holiday prices by 10 per cent in March from the previous month and lift European air fares by an annual rate of 4 per cent in March, before they drop 8 per cent in April.

Despite this, national inflation data published this week suggested that overall price pressures still increased less than expected in March.

Spanish inflation rose less than economists’ forecast to 3.2 per cent in March, despite reduced government subsidies pushing up electricity and fuel prices. French inflation slowed from 3.2 per cent to 2.4 per cent. In Italy price growth rose from 0.8 per cent to 1.3 per cent, but was below economists’ forecast of 1.5 per cent.

The ECB next meets to decide policy on April 11. But senior policymakers have already signalled they are likely to wait until June to check if wage pressures are moderating enough for them to cut rates. If inflation slows only slightly in March, as widely forecast, it is unlikely to persuade rate-setters to change their plans. Martin Arnold

Did US hiring slow in March?

US employers’ pace of hiring is expected to have slowed in March but it is not likely to persuade the Federal Reserve to cut interest rates early.

The labour department is forecast to report on Friday that the US added 200,000 jobs in March, according to economists polled by Reuters. That is down from the 275,000 added in February. The unemployment rate is expected to be unchanged at 3.9 per cent.

Growth in February and March still indicates that the labour market remains strong. The steady state of the unemployment rate also suggests it is unlikely that the figures will persuade the Fed to cut interest rates earlier or faster than the current forecast of three cuts this year beginning this summer.

But continued weakness in the coming months, may help make the case for future rate cuts down the line, wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets.

“While there is no degree of weakness . . . in the jobs data that would get the Fed to cut before June, investors have been very cognisant that the risk of a spike in the unemployment rate continues to provide a potential policy-accelerating impulse,” he said. Kate Duguid

Will Chinese business confidence begin to rise?

Investors will be closely watching a Chinese business confidence survey for indications that depressed sentiment is beginning to lift.

Caixin is scheduled to release its March services purchasing managers’ index reading on Wednesday. In recent months the Caixin PMIs have outperformed their official counterparts from the National Bureau of Statistics, which focuses on larger and more state-owned businesses.

In particular, the Caixin services PMI has expanded — meaning a reading above 50 — every month since December 2022, when China ended its long-standing zero-Covid policy. That has indicated some signs of a recovery in a moribund economy as restaurants, cinemas and shopping malls fully reopened after years of intermittent lockdowns.

“The encouraging start to industrial data at the start of the year also raises the possibility of an upside surprise,” wrote analysts at ING in a recent note. Still, another month of business expansion is unlikely to spark an inflow into China’s depressed equity markets, or to significantly alter muted business and consumer sentiment.

The bigger problem is that China’s current plan for achieving its 5 per cent growth target for 2024 is still highly reliant on exports rather than stimulating domestic consumption.

But China’s economy is now so big, and overseas political opposition to some of its exports so high, that it is unclear if there is sufficient foreign demand to pull Asia’s largest economy out from its deflationary trajectory. William Sandlund

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