Business

Series of rate rises likely as euro zone inflation comes in higher than forecasts

Inflation excluding energy and food prices climbs to new euro zone record of 5.6%

The ECB has raised rates by 3 percentage points since the summer and has signalled it intends to raise borrowing costs by a further half-point this month. Photograph: Krisztian Bocsi/Bloomberg
The ECB has raised rates by 3 percentage points since the summer and has signalled it intends to raise borrowing costs by a further half-point this month. Photograph: Krisztian Bocsi/Bloomberg
Martin Arnold
Thu Mar 02 2023 - 11:06

Euro zone inflation fell less than many economists forecast in February, fuelling expectations that the European Central Bank (ECB) will raise interest rates several more times this year.

Consumer price growth eased slightly to 8.5 per cent in the year to February, from 8.6 per cent in January, as prices for services, goods and food rose faster even though energy price growth slowed. Economists polled by Reuters had expected the figure to fall to 8.2 per cent.

Core inflation, which central bankers watch closely as it excludes energy and food prices to give a clearer picture of underlying pressures, rose to a new euro zone record of 5.6 per cent — up from 5.3 per cent in the previous month.

The figures show inflation in the Irish economy unexpectedly rose to 8 per cent in February, up from 7.5 per cent the previous month, again surprising on the upside with food and transport prices driving the increase.

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[ Inflation unexpectedly rises to 8% in February ]

ECB president Christine Lagarde said before the flash estimate that while inflation was likely to have risen “a little bit” in February, it was on track to fall “much more” in March, due to the base effects of year-on-year comparisons with last year’s high energy prices.

The ECB has raised rates by 3 percentage points since the summer and has signalled it intends to raise borrowing costs by a further half-point this month.

Lagarde told Spanish TV station Antena 3 on Thursday that rising food prices meant the downward path of inflation would not be steady and more rate rises may be needed after this month.

Financial markets are pricing in a jump in the ECB’s deposit rate to 4 per cent later this year, up from the current 2.5 per cent. That would overtake the 2001 peak of 3.75 per cent, when the ECB was still trying to shore up the value of the newly launched euro. – Copyright The Financial Times Limited 2023

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