Consumer prices were significantly weaker than expected in March. With base effects strongly negative, a provisional 0.2 percent monthly increase in the CPI was small enough to reduce the annual inflation rate by fully 0.6 percentage points to 1.6 percent, its lowest reading since last November. The flash HICP was softer still, registering just a 0.1 percent monthly rise that lowered its yearly rate from 2.2 percent to 1.5 percent.
However, at least part of the fall in the annual rates will reflect the distortions caused by an early Easter in March 2016. This contributed to a sizeable 0.8 percent monthly spike in prices as some charges, notably in the holiday industry, were hiked a month ahead of usual. This impact should be unwound in next month's figures as the CPI duly fell 0.4 percent on the month in April last year as the temporary Easter effects were reversed.
In terms of the major sectors, the slide in this month's annual CPI rate was dominated by a 0.6 percentage point drop in services to 0.7 percent. However, food also declined from 4.4 percent to 2.3 percent and energy was down from 7.2 percent at 5.1 percent. Overall goods inflation was off 0.7 percentage points at 2.5 percent while rent, excluding utilities, was flat at 1.6 percent.
The deceleration in Germany, together with the sharp fall already announced in Spain (2.1 percent from 3.0 percent), all but guarantees a sizeable decline in the full Eurozone inflation rate this month (flash data tomorrow). However, key here will be the performance of the core rates where any deceleration or acceleration could have a significant impact upon market sentiment.