Examining the data influencing the European Central Bank’s (ECB) policy decisions.

■ While the ECB Governing Council is expected to keep interest rates unchanged in April, attention should be paid to how the ECB assesses the impact of the energy shock on prices.  
■ Recent business and household sentiment has deteriorated significantly, and businesses are passing on costs to prices. 
 
The ECB Governing Council meetings on April 28th and 29th, against the backdrop of high uncertainty in the Middle East, are expected to maintain policy rates. Market focus will be on President Lagarde's statements at the press conference. Although the market has already priced in two rate hikes this year, the ECB's stance on subsequent rate hikes and how it assesses the impact of the energy shock on inflation remains to be seen in the President's remarks. The ECB previously stated that future policy decisions will focus on corporate pricing behavior and wage increases, as well as household inflation expectations. President Lagarde also pointed out in her speech that "it is necessary to confirm the actual data" to make appropriate policy judgments. 
 
The preliminary April PMI figures released on the 23rd are an important indicator for observing business sentiment and pricing behavior. The composite index (48.6, down 2.1 points from the previous month) fell sharply, dropping below the 50-point threshold for the first time since December 2024. The decline was primarily driven by the services sector (47.4, down 2.8 points), which saw its largest drop since February 2021 during the COVID-19 pandemic. On the other hand, the manufacturing sector (52.2, up 0.6 points) showed some resilience, rising slightly. However, the issuing agency noted that businesses' increased inventory to cope with further price increases and supply shortages boosted demand; the resilience of this index should be viewed with caution. In fact, the supplier delivery time index, a contrarian indicator, declined, indicating further disruption to the supply chain. Meanwhile, both input and output price indices rose, suggesting increasing inflationary pressures at both the upstream and downstream levels due to high energy prices. The rise in the output price index, in particular, suggests that businesses are accelerating the passing on of costs to prices, increasing the likelihood of this transmission to core consumer prices. However, although current input and output price indices have risen to levels seen during the peaks of 2008 (financial crisis) and 2011 (European debt crisis), they remain low compared to 2022 (post-pandemic, post-Russia-Ukraine conflict). Whether the situation in the Middle East will further exacerbate these increases remains to be seen. 
 
The European Commission's (EC) consumer survey released on the 22nd also showed a significant decline in consumer confidence in April (-20.6, a decrease of 4.2 points from the previous month), reflecting a marked deterioration in consumer sentiment amid uncertainty over the Middle East situation. Furthermore, inflation expectations data from the ECB's consumer expectations survey will be released on the 28th. The extent to which the current energy shock will impact households and the impact of this data on ECB policy decisions need to be closely monitored.