In Eurozone, inflation dropped in February. However, it slowed less than analysts expected while underlying price growth soared. As a result, economists expect the European Central Bank to continue its hawkish monastery policy.
In the twenty eurozone countries, consumer price inflation fell to 8.5% last month compared to 8.6% reported in January. A big plunge in energy prices offset inflation’s surge in almost all other areas. However, it was still higher than the forecasted 8.2%.
All in all, inflation has slowed considerably compared to its double-digit highs hit in October, but it continues to climb. Consequently, traders fear that the earlier rally has seeped into the global economy via so-called second-round effects. That will make it more difficult to bring down inflated prices.
Moreover, underlying inflation, which filters out volatile fuel and food prices, skyrocketed to 5.6% from 5.3%. This figure is much above analysts’ expectations.
How does the ECB plan to fight inflation?
The European Central Bank announced that it would deliver another half-percentage-point rate increase at its meeting on March 16. It is determined to fight inflation, but negative data is already causing speculation in the markets about how high the ECB will need to hike rates.
Paolo Grignani at Oxford Economics noted that core inflation remains high. That seals the deal for at least a 50-bps rate increase in March. Furthermore, it paves the way for the ECB to continue its monetary policy tightening in the second quarter.
Market participants bet on the central bank hiking rates by a combined 100 basis points in March and May. On Thursday, ECB chief Christine Lagarde confirmed that the bank might hike rates by more than 50 basis points this month.
According to a new report, price growth in services accelerated from 4.4% to 4.8%. That causes much concern to investors since this particular sector is very sensitive to wage growth. Such a rise hints at an acceleration in labor costs.