Italian CPI Report Signals Softer Headline Inflation in March

It was a quiet start to the day on the European economic calendar. Finalized Italian inflation numbers for March drew interest, with investors looking for affirmation of a 50-basis point ECB interest rate hike in May.

In March, consumer prices in Italy fell by 0.4%, according to finalized figures, versus a prelim 0.3% decline. Consumer prices rose by 0.2% in February.

According to Istat,

• The annual inflation rate softened from +9.1% to +7.6% versus a flash estimate of +7.7%.
• Prices of non-regulated energy goods (from +40.8% to 18.9%) and regulated energy (from -16.4% to -20.3%) delivered a softer annual inflation rate.
• However, prices for unprocessed food rose accelerated from +8.7% to +9.1%, with prices for tobacco up from +1.8% to +2.5%.
• Housing-related services also partially offset the fall in energy prices, rising from +3.3% to +3.5%.
• The core inflation (excl. energy and unprocessed foods) was +6.3%, unchanged from February.

The softer headline inflation figures supported a more dovish ECB monetary policy stance. However, uncertainty lingers, with ECB Executive Board members looking beyond energy prices and considering core inflation.

On Friday, ECB Executive Board Member Pierre Wunsch had this to say,

“I think May will be about 25 or 50 basis points. If there’s another upside surprise in core inflation and the lending survey doesn’t look too bad, we might have to do 50. If there is a positive surprise in core, then perhaps 25 is more appropriate.”

Wunsch added,

“Given that wage dynamics will be incompatible with the 2% inflation target for years and real rates are still low, I don’t see any quick reversal of policy once we reach the terminal rate.”

Considering Wunsch’s comments, the steady core inflation rate continued to support a 50-basis point interest rate hike in May. However, the finalized euro area numbers will have more influence before the focus shifts to the all-important prelim figures for April.

EUR/USD Reaction to Italian CPI Report

Ahead of the Italian inflation figures, the EUR/USD rose to an early high of $1.09998 before falling to a pre-stat low of $1.096160.

However, in response to the inflation numbers, the EUR/USD rose to a post-stat high of $1.09934 before falling to a low of $1.09696.

This morning, the EUR/USD was down 0.19% to $1.09718.

Next Up

With inflation in focus, investors should monitor ECB commentary today. ECB President Christine Lagarde and Executive Board members Elizabeth McCaul and Anneli Tuonminen will deliver speeches today.

Looking ahead to the US session, it is a quiet day on the US economic calendar.

New York Empire State Manufacturing Index figures for April will be in focus. Better-than-expected numbers would ease immediate recession fears and support riskier assets. Economists forecast the Index to increase from -24.60 to -18.00.

However, investors should monitor Fed chatter on monetary policy and the US economy. We expect increased sensitivity to FOMC member commentary as the markets respond to guidance beyond May.

Italian CPI Overview

Italian CPI event refers to releasing data or reports related to Italy’s Consumer Price Index (CPI). The CPI is an important economic indicator that measures the change in prices of a basket of goods and services typically consumed by households over time. These goods and services may include food, clothing, housing, transportation, healthcare, etc.

The CPI data helps policymakers, economists, and financial market participants assess inflationary trends in the country. A rise in the CPI indicates an increase in the cost of living and may signal inflation, while a decrease in the CPI suggests a decline in the cost of living and may indicate deflation.

In Italy, the CPI data is released periodically (usually monthly) by the Italian National Institute of Statistics (Istat). These events are closely watched by investors, analysts, and the government as they can impact monetary policy decisions and provide insight into the overall health of the Italian economy.