Eurozone inflation eased more than expected to the lowest level in more than a year in March driven by the fall in energy prices but the core figure edged up to a new record to keep the pressure on the European Central Bank to tighten its policy further.
Consumer prices advanced 6.9 percent on a yearly basis in March, slower than the 8.5 percent rise in February, flash estimate published by Eurostat showed Friday. Prices were expected to climb 7.1 percent.
This was the weakest inflation rate since February 2022 when prices rose 5.9 percent.
Core inflation that excludes energy, food, alcohol and tobacco, rose slightly to 5.7 percent in March, as expected, from 5.6 percent in the previous month.
The potential for core inflation to remain stickier than hoped will be the main reason for the ECB to continue to hike in the near term, ING economist Bert Colijn said. The economist expects another 25 basis point hike in May and another in June.
Overall, March's consumer price data will do nothing to change their view that more rate hikes will be necessary to bring inflation down to the 2 percent target, Capital Economics economist Jack Allen-Reynolds said.
Moreover, the labor market remains tight, which should keep wage growth and, in turn, services inflation strong, the economist added.
Earlier this month, the European Central Bank hiked its interest rates by 50 basis points as inflation is expected to remain "too high for too long".
In the latest ECB Staff macroeconomic projections, headline inflation projection for this year was lowered to 5.3 percent from 6.3 percent. On the other hand, core inflation forecast for this year was raised to 4.6 percent from 4.2 percent.
The major factor that pushed up inflation over a year was energy prices. Russia's invasion of Ukraine pushed up oil and gas prices early last year but the mild weather smoothened energy price pressure in the currency bloc.
All big four economies experienced a slowdown in inflation. Germany's EU harmonized inflation fell to 7.8 percent in March from 9.3 percent in the previous month. Likewise, France's inflation eased to 6.6 percent from 7.3 percent.
Spain's inflation dropped more markedly to 3.1 percent from 6.0 percent. At the same time, Italy's price growth came in at 8.2 percent compared to 9.8 percent in February.
In March, Eurozone energy prices posted an annual decline of 0.9 percent, in contrast to the 13.7 percent rise in February, Eurostat reported.
At the same time, food, alcohol and tobacco prices grew at a faster pace of 15.4 percent, following a 15.0 percent gain in February. Services cost climbed 5.0 percent after an increase of 4.8 percent.
Non-energy industrial goods prices moved up 6.6 percent but the rise was weaker than February's 6.8 percent.
On a monthly basis, the harmonized index of consumer prices climbed 0.9 percent in March.
Final data is due on April 19.
Separate data from Eurostat showed that the euro area unemployment rate remained unchanged at 6.6 percent in February after the January figure was revised. In the same period last year, the rate was 6.8 percent.
Economists had forecast the jobless rate to remain unchanged at January's initial figure of 6.7 percent.
Data showed that the number of people out of work decreased by 59,000 from the previous month to 11.142 million in February. Compared to last year, the unemployment decreased 257,000.
The unemployment rate among youth aged below 25 held steady at 14.4 percent in February.