(Bloomberg) -- Italian inflation accelerated more than anticipated to exceed the European Central Bank’s 2% target for the first time in 18 months.
Consumer prices rose 2.1% from a year ago, compared with 1.7% in February, the national statistics institute said Monday. Economists in a Bloomberg survey had expected a reading of 1.8%.
The main drivers were energy and food costs.
ECB officials are sending mixed signals on where to take borrowing costs after lowering the deposit rate six times, to 2.5%. With inflation receding and the euro-zone economy at risk from US tariffs, doves favor another cut in April. Hawks, though, want a pause, arguing that President Donald Trump’s trade levies and a surge in European defense spending are likely to stoke prices.
Data last week showed inflation undershot expectations in France and Spain, prompting markets to boost bets on monetary easing this year. They now see two more quarter-point cuts and a 50% chance of a third. Investors put the likelihood of a reduction next month at 90%.
Goldman Sachs Group Inc. economists now forecast the ECB will lower rates three more times this year as Trump’s tariffs weigh on growth.
What Bloomberg Economics Says...
“Going forward, barring upside surprises on energy, we think that weak demand and the early signs of labor market cooling will keep Italian inflation pressures in check throughout the year.”
—Simona Delle Chiaie, senior economist. For full react, click here
Inflation reports due later Monday from Germany and on Tuesday from the euro area are set to show further moderation. Bloomberg Economics’s Martin Ademmer reckons early regional data from Germany suggest the consensus estimate of 2.4% for the country as a whole will prove correct. March’s number for the 20-nation bloc is seen dipping to 2.2% from 2.3%.
But top ECB officials are warning that there’s still work to do on prices, with President Christine Lagarde saying policymakers can’t relent.
“It is a daily struggle,” she told France Inter Radio. “We are almost where we should be, but we have to remain there, so that’s why I say it’s a constant battle.”
While calling for the sluggish economy to be taken into account, Italy’s Fabio Panetta struck a similar tone.
“Looking ahead, we can’t yet say that the battle against inflation is over,” he told a press conference in Rome. “It’s crucial that we monitor any factors that could prevent inflation from returning to its 2% target.”
--With assistance from William Horobin, James Hirai, Harumi Ichikura, Joel Rinneby and Mark Evans.
(Updates with BE after sixth paragraph)