German Price Expectations Hit Three-Year Low, ECB Interest Rate Cut Anticipated

German Price Expectations Hit Three-Year Low, ECB Interest Rate Cut Anticipated

In March, German firms reported a significant drop in price expectations, reaching a three-year low, according to the Ifo institute. This decrease suggests that inflation may soon dip below the European Central Bank‘s (ECB) target, potentially in the upcoming months.

“Inflation is still on the decline and should fall below 2% this summer. From a German perspective, there’s no reason why the ECB shouldn’t cut interest rates soon,” stated Timo Wollmershaeuser, the head of forecasts at Ifo.

The price expectations index of the institute fell to 14.3 points in March from 15.0 points in February, marking its lowest point since March 2021. 

Meanwhile, German inflation saw a reduction to 2.7% in February, a significant drop from the double-digit peaks experienced amid the energy crisis instigated by Russia’s invasion of Ukraine.

As inflation trends downward, an increasing number of ECB policymakers are leaning towards the possibility of reducing interest rates. 

With discussions underway, the June meeting of the ECB is anticipated as the probable moment for such an action, although a meeting is also scheduled for this month, indicating that adjustments could come sooner.

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