Inflation in the Eurozone has slowed more than anticipated in March, igniting speculation in financial markets about the potential for the European Central Bank (ECB) to continue reducing interest rates this month.

Despite total inflation dropping to its lowest level in four months, several prevailing factors may complicate the ECB's decision due at its meeting on April 17.

According to preliminary data from Eurostat released on Tuesday, consumer prices in the Eurozone increased by 2.2% year-on-year in March, the lowest since November 2024 and slightly below the consensus forecast of 2.3%.

Core inflation, which excludes volatile energy and food prices, decreased to 2.4% from 2.6% in February, marginally under the expected figure of 2.5%.

Despite overall inflation easing on an annual basis, monthly data presents a contrasting scenario.

Total inflation accelerated by 0.6% compared to February, marking the highest monthly increase in nearly a year.

Core inflation also surged by 0.8% on a month-to-month basis, representing the steepest rise since March 2024.

Price pressures remain evident in several sectors.

Costs for food, alcohol, and tobacco rose by 2.9% year-on-year, compared to 2.7% in February.

Inflation in the services sector, a key metric closely monitored by the ECB due to its correlation with wage growth and domestic demand, slowed to 3.4% annually, down from 3.7% in February.

While this is the lowest level since June 2022, the monthly increase of 0.4% suggests that underlying pressures have not abated.

Inflation trends have varied geographically across the Eurozone.

France reported the lowest harmonized annual inflation rate at just 0.9%, while Estonia, Croatia, and Slovakia recorded rates of 4.3%.

Monthly consumer prices increased by 1.8% in Greece, 1.7% in Portugal, and 1.6% in Italy.

Conversely, Belgium, Estonia, and Luxembourg experienced declines in monthly prices.

As of Tuesday, money markets estimated a 65% probability that the ECB would lower the interest rate by 25 basis points at the meeting on April 17. However, signs of division within the ECB's Governing Council are becoming increasingly apparent.

Several officials are reportedly contemplating the possibility of pausing rate changes in April to await further clarity, particularly regarding the economic implications of U.S. trade policies and increased European defense spending.

The ECB's current deposit rate stands at 2.5%, down from a peak of 4%.

The bank has signaled that any further easing will depend on the confirmation of data trends, and some analysts suggest that the March figures provide mixed signals.

Economic assessments indicate a possibility for a rate cut but highlight potential risks.

The chief European economist at a prominent investment firm noted that core inflation is on track to reach the ECB’s target of 2% by the end of the year.

The ECB's president has conveyed a more conservative outlook on the economic impact of tariffs than previous analyses suggested.

Experts warn of significant risks from American tariffs, estimating that a 25% tariff on a wide range of products could shrink GDP growth by up to 1.4%.

An economist at another financial institution remains cautious, acknowledging the trend of lower-than-expected inflation.

Maintaining their forecast for the terminal deposit rate to fall to 1.5% by September, they observe that risks surrounding a pause in April have increased and communication regarding future moves is expected to be uncertain.

The head of macroeconomic research at a banking institution noted that the March interest rate reduction was largely anticipated, but the outlook for April appears less certain.

The Governing Council has signaled that interest rates are near neutral levels, and with fiscal support and potential trade shocks, June may present a more favorable moment for the next decision.