Euro area core CPI jumps in April

The cost of living in the single currency bloc continued rising in April, hitting a new record in the process as inflationary pressures broadened out from energy.

According to Eurostat, in seasonally adjusted terms, the euro area Consumer Price Index jumped at a month-on-month pace of 0.6%.

That pushed the annual rate of increase from 7.4% in March to 7.5% in April, as expected by the consensus.

Data for Belgium, Germany and Spain the day before had led some economists to believe that a dip to 7.3% was possible.

Core CPI as defined by the ECB, which strips out the impact from food, energy, alcohol and tobacco, accelerated much more quickly, with the year-on-year rate rising from 2.9% to 3.5%.

In a research note sent to clients the day before, Morgan Stanley's Markus Guetshow, who had expected headline CPI to be unchanged at 7.4%, cautioned that "the fact that core pressure continues to build is clearly a worrying sign for policy-makers."

Even so, he had been expecting the pause to be "supportive of recent comments by ECB Chief Economist Lane, who argued that euro area inflation should peak by mid-year."

Annual headline CPI rose in Austria, France, Germany and Portugal but slowed in Italy, Spain, and the Netherlands, while remaining flat in Belgium.

The year-on-year rate of increase in energy prices across the euro area slowed from 44.4% in March to 38.0% for April, but that for non-energy industrial goods jumped from 3.4% to 3.8% and that for services from 2.7% to 3.3%.

In a separate report published alongside the latest CPI numbers, Eurostat estimated that euro area gross domestic product expanded at a quarter-on-quarter pace of 0.2% over the three months ending in March (consensus: 0.3%).

That followed growth of 2.2% in the third quarter of 2021 and of 0.3% during the fourth quarter.

Year-on-year, euro area GDP was ahead by 5.0%, but stagflation risks were rising, said Capital Economics.

"The small increase in euro-zone GDP in Q1 means that the region will avoid a technical recession in the first half of the year at least," Andrew Kenningham, chief Europe economist at Capital Economics said in response to the data.

"But rising inflation and the fallout from the Ukraine war mean that GDP is likely to contract in Q2, even as the ECB gears up to raise interest rates."