EMU Core Inflation is Mostly Stable and Mostly Too High

European Monetary Union inflation rose by 0.1% in April but the core is rising by 0.3%. The headline rate rose by 0.2% in February and was flat in March; the core has slightly accelerated in April from its 0.1% gain in February and its 0.2% rise in March.

The progressive headline inflation sequence shows inflation stable to accelerating with a 2.2% annual rate over 12-months, a slight uptick to 2.3% annual rate over 6-months and then down to a pace of 1.4% over 3-months. The EMU core shows a steadier deceleration with a 2.7% rise over 12-months, a 2.5% annual rate gain over six-months, and a 2.3% annual rate gain over three-months.

In April the largest monetary union economies show that monthly inflation has been well-behaved with no change in Germany, a 0.1% increase in Spain, and a 0.1% decline in Italy; all of that is juxtaposed against the 0.4% rise in France but France's increase comes after several months of the headline inflation declining. France is not really an outlier in this process.

Looking at sequential inflation rates across the largest monetary union economies, Germany shows inflation decelerating with the 1.9% annual rate over 12-months and six-months then showing prices declining 0.6% at an annual rate over three-months. France shows inflation at 0.9% over 12-months down to a 0.5% at an annual rate rise over six-months and with prices falling at a 1.4% annual rate over three-months. Italian inflation, contrarily, is accelerating from 2% over 12-months to 3% over six-months to an annual rate of 3.3% over three-months. Italian inflation expands 2.1% over 12-months, rising to a 3% pace over six-months, then with shows prices falling at a 0.8% annual rate over three-months. These are unclear trends, however, for three of the four largest economies, prices are falling over three-months on balance. However, that kind of optimism doesn't carry through to core inflation. Clearly, the driving good-inflation news is falling Brent oil prices. Brent prices, expressed in euros, fell 10.7% in April after falling 7% in March and falling 4.3% in February. Over the sequential periods we have Brent oil prices down 27.7% over 12-months falling at a 25% annual rate over six-months and falling at a 60% annual rate over three-months. It's no surprise whatsoever that headline inflation in the monetary union is behaving in the face of such oil price weakness.

Core inflation in the monetary union tells a very different story. For Germany we have inflation excluding energy prices; on that basis data show some deceleration but from 2.8% over 12-months to 2.6% over 6-months and then a slight back up to 2.7% at an annual rate over three-months. French core inflation is stuck but it appears to be stuck below the 2% mark with a 1.5% gain over 12-months, a gain of 1.8% at an annual rate over six-months and a gain at 1.6% get an annual rate over three-months. In Italy inflation is up 2.1% over 12-months, up at a 2.2% annual rate over six-months and up at a 2.7% annual rate over three-months. Core Spanish inflation is cruising just above the ECB's desired mark at a 2.3% annual rate over 12-months, at 2.1% annual rate gain over six-months and a 2.3% annual rate gain over three-months.

More Progress to come! The inflation news for the monetary union is not particularly bad, it just simply hasn't conformed to its target yet. A year ago, year-over-year inflation was 2.2%. That's the same as year-over-year inflation now, in April of 2025. A year-ago core inflation for the monetary union was up at a 2.7% annual rate over 12-months, and now, in April, it's rising at the same 2.7% annual rate. Still, for all of 2025 inflation is expected to be only slightly above the 2% mark, reaching its target pace by mid-year. Annual 2.1% inflation is expected for all of 2025; it then is predicted to dip below 2% in the next two years. Clearly what happens with the United States tariff negotiations will have a big impact on these estimates.