Economists: Falling inflation in the services sector clears the way for the Central Bank to cut interest rates

Economist Jamie Rush said eurozone services price inflation fell to 3.7% in April. If there had been no shocking change in wages, or no surge in commodity costs, the rate cut would have occurred in June. The significantly stronger-than-expected GDP rise suggests that the economy is doing quite well at high Intrerest Rate, which also increases the likelihood that the council will keep borrowing costs steady in July. The most noteworthy aspect of the data released in April was the decline in service price inflation, most likely due to the decline in transport costs, hotel accommodation prices and the price of eating out. Headline inflation is expected to rise to 2.6% in May, reflecting the base effect of transport prices in Germany. However, core inflation will gradually decline in the following months, and headline inflation is likely to be below 2% in August. We expect lower-than-expected inflation in the second half of the year, coupled with broader signs of slowing inflation, which will open the door for the Central Bank to cut interest rates aggressively this year. We still expect four rate cuts.