Eurozone inflation fell less than expected last month and underlying price growth surged, reinforcing the case for the European Central Bank to keep raising interest rates at a brisk pace, data from Eurostat showed. | Reuters
The ECB has promised another half a percentage-point rate hike for March 16 to fight inflation but grim data is already shifting the debate to subsequent meetings as markets continue to raise their best for just how high the ECB will need to go.
Market pricing has moved up so much, some even see a risk the ECB would hike by more than 50 basis points this month, despite its explicit guidance, which has been repeatedly confirmed, most recently by ECB chief Christine Lagarde on Thursday. Price growth in services, the biggest component in core inflation, accelerated to 4.8 percent from 4.4 percent, a big worry since the sector is especially sensitive to wage growth and the rise suggests an acceleration in labour costs.
Bundesbank President Joachim Nagel has already argued that the recent fall in energy prices only lower short-term inflation and does not improve medium-term prospects, so the ECB may need to opt for another large rate hike in May.His concerns have been shared by several prominent conservatives, including ECB board member Isabel Schnabel and Dutch central bank chief Klaas Knot, suggesting that the ECB’s hawkish majority is not about to back off.
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