Eurozone inflation fell in March, but the ECB’s path is unclear
- The main reason for the fall of 1.6 percentage points was the fall in energy costs.
- These figures do not provide strong enough evidence that the European Central Bank may consider pausing the rate hike cycle, which began in July.
- The ECB raised interest rates by 50 basis points in March, bringing the key benchmark rate to 3%. However, it gave no indication of potential interest rate decisions in the months ahead.
A market stall in Madrid, Spain. Analysts digest the latest inflation figures out of the Eurozone.
Europe Press News | Europe Press | Getty Images
Eurozone inflation fell significantly in March as energy prices continued to fall, while core costs rose to record highs.
Overall inflation in the 20-member bloc came in at 6.9% in March, according to preliminary Eurostat figures published on Friday. In comparison, overall inflation in February was 8.5%.
The main reason for this fall of 1.6 percentage points was the fall in energy costs.
However, there are other parts of the inflation curve that remain stubbornly high. Food prices contributed the most to the overall inflation reading in March.
Core inflation – which excludes volatile energy, food, alcohol and tobacco prices – rose slightly from last month. It reached a record high of 5.7% in March, from 5.6% in February.
These figures do not provide strong enough evidence that the European Central Bank may consider pausing the rate hike cycle, which started back in July.
– Policymakers at the ECB will not read too much into the fall in headline inflation in March and will be more concerned about the core interest rate hitting a new record high, said Jack Allen-Reynolds, deputy director for the eurozone at Capital Economics. in a note on Friday.
He added that the ECB is likely to continue raising interest rates despite the drop in the headline figure.
ECB member Isabel Schnabel said on Thursday that headline inflation has started to ease, but core inflation is proving sticky.
While last year’s energy price increases spread quickly across the economy, they are taking longer to dissipate, “and it’s not even clear if it’s going to be completely symmetrical in the sense that it’s all going to fall out at all,” she said at an event on Thursday, according to Reuters.
The ECB raised interest rates by 50 basis points in March, bringing the key benchmark rate to 3%. However, it gave no indication of potential interest rate decisions in the months ahead.
The recent banking crisis has raised questions about whether central banks have been too aggressive in moving interest rates to tackle inflation. The ECB’s chief economist, Philip Lane, has said that more interest rate hikes will be needed to meet high inflation if banking instability disappears.
