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The CPI moderates to 8.5% in the euro area on the verge of another rate hike

Date: March 24, 2023 Time: 21:17:57

The year-on-year inflation rate in the euro area eased by one tenth compared to January and stands at 8.5% in February, according to the preliminary reading of the community statistical office, Eurostat. The data is made public just a few days after a new meeting of the European Central Bank (ECB) where rates are expected to rise in others with an additional 0.5 basis points. As for the underlying inflation rate, it shows a rise that excludes the effect of energy and food, up to a new record of 5.6%.

In this way, the year-on-year inflation rate in the euro area has already accumulated four consecutive months of deceleration and stands at its lowest level since May 2022, before the European Central Bank (ECB) begins to raise interest rates .

In the month of February, the rise in energy prices moderated to 13.7% from 18.9% in January, while the price of fresh food was 13.6%, compared to 11.3 % of last month. Likewise, services rose 4.8% year-on-year, four tenths more than in January, and non-energy industrial goods became more expensive by 6.8%, one tenth more than in the previous month.

Eliminating the calculation of the impact of energy, the year-on-year inflation rate in the euro zone stood at 7.7% in February, compared with 7.3% in January. Likewise, when also leaving out the effect of the prices of fresh food, alcohol and tobacco, the core inflation rate in the euro zone rose to 5.6% from 5.3% in January, its highest level of the entire historical series

In this way, despite the fact that the headline inflation rate has accumulated four consecutive months of decline, the high level of core inflation reinforces the ECB’s position to undertake a new rise of 50 basis points at its meeting on March 16 , when it publishes its new macroeconomic projections for the euro zone.

Spain, third with the lowest inflation in the euro area

Among the countries of the euro area, which since January has also included Croatia, the highest price increases in February corresponded to Latvia (20.1%), ahead of Estonia (17.8%) and Lithuania (17. 2%).

At the opposite extreme, the most moderate increases were observed in Luxembourg (4.8%), Belgium (5.5%) and Spain (6.1%). Thus, the favorable price differential for Spain stood at 2.4 percentage points in February, three tenths less than in January.

Rate hike of 50 basis points in March

This Thursday, during an interview with the ‘Espejo Público’ program on Antena 3, the president of the ECB, Christine Lagarde, reiterated that “it is very likely” that interest rates in the euro area will rise another 50 basis points in March, while that it has ruled out any drop in the price of money before inflation has stabilized in line with the 2% target, something it does not expect to happen before 2025.

“Interest rates will not return to where they were a few years ago,” the Frenchwoman assured, noting that the institution’s projections suggest that inflation in the euro area will return to the stability goal of 2% “in 2025.”

While Lagarde has noted that “rates will not stay high forever,” she has warned that only when the euro region’s inflation rate has stabilized in line with the 2% target, “then rates can be lowered.” “.

In this sense, the central bank has defended the importance of making sure that the objective is met to return inflation to the level of price stability in a solid way to avoid lowering rates and having to raise them again. “That’s what we don’t want,” she said.

In any case, the president of the ECB has reiterated in view of the meeting of the Governing Council on March 16 that “it is very likely” that a 50 basis point rise in interest rates will be decided, since it does not exist in At this time there is no reason to think that it will not be so.

Also noting the ECB’s reliance on incoming data, Lagarde has indicated that the institution may continue to raise the price of money. “We will do whatever is necessary for inflation to return to 2%,” he summarized.

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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