Headline annual inflation in the Eurozone slowed for the fourth straight month in February, but the core rate jumped unexpectedly to a new high, an unwelcome surprise for European Central Bank rate-setters battling weak economic activity and rampant consumer price growth.
Preliminary data from the EU statistics office Eurostat showed a decline in inflation last month to 8.5%, a mark above economists’ expectations of 8.3% and just a touch below the 8.6% reading in January.
But any good news about another slip in the headline measure was overshadowed by the announcement that core rate surged to a record 5.6%, outpacing the previous record of 5.3% set in January, a level also expected this month by analysts.
“February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed,” wrote Jack Allen-Reynolds from Capital Economics. “For some time we have been forecasting a 50-basis point hike at the meeting in two weeks’ time and another in May, but further hikes at later meetings now look increasingly likely.”
Frederik Ducrozet, head of macroeconomics at Pictet Wealth Management, tweeted: “Until we see the first signs of underlying inflation peaking, the ECB is unlikely to slow the pace of tightening. Another 50bp hike in May is in play.”
The bank’s next rate decision is set for 16 March.
Most major EU economies announce higher inflation
Allen-Reynolds said the decline in euro area headline consumer price growth came as somewhat of a surprise after rises in Germany, France and Spain. “But the data released today show that these increases were offset by declines in Italy and some smaller countries.”
Italy – the Eurozone’s third-largest economy – said Thursday that its initial estimate for EU-harmonised inflation fell to 9.9%, which was higher than market expectations of 9.5% but below the 10.7% mark in January.
The news followed Wednesday’s inflation news from Germany, the largest economy in the euro area, which said its initial estimate for consumer price growth rose to 9.3%, an unexpected increase that surpassed the 9.0% market forecast and the 9.2% rate reported in January.
France, the Eurozone’s second-largest economy, said Tuesday morning in a preliminary report that its EU-harmonised inflation rate rose to 7.2%, the highest since the euro was introduced in 1999. Spain, the euro area’s fourth-largest economy, announced Monday that its rate rose to 6.1% to exceed January’s 5.9%.
The latest consumer price increases come at a time when European economies continue to struggle. The Eurozone GDP only grew 0.1% in the final three months of 2022 compared to the previous quarter, when the expansion was 0.3%.
And last week Germany announced that it had downwardly revised its Q4 GDP growth estimate to a contraction of 0.4% from its preliminary report of 0.2% decline.
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- Decease in overall consumer price growth less than expected
- Jump in core rate surprises again
- Most major economies report higher inflation
- Sticky price growth comes as business activity weakens
- Latest data to drive further ECB rate hikes
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
2 March 2023 | 11:00 GMT
Headline annual inflation in the Eurozone slowed for the fourth straight month in February, but the core rate jumped unexpectedly to a new high, an unwelcome surprise for European Central Bank rate-setters battling weak economic activity and rampant consumer price growth.
Preliminary data from the EU statistics office Eurostat showed a decline in inflation last month to 8.5%, a mark above economists’ expectations of 8.3% and just a touch below the 8.6% reading in January.
But any good news about another slip in the headline measure was overshadowed by the announcement that core rate surged to a record 5.6%, outpacing the previous record of 5.3% set in January, a level also expected this month by analysts.
“February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed,” wrote Jack Allen-Reynolds from Capital Economics. “For some time we have been forecasting a 50-basis point hike at the meeting in two weeks’ time and another in May, but further hikes at later meetings now look increasingly likely.”
Frederik Ducrozet, head of macroeconomics at Pictet Wealth Management, tweeted: “Until we see the first signs of underlying inflation peaking, the ECB is unlikely to slow the pace of tightening. Another 50bp hike in May is in play.”
The bank’s next rate decision is set for 16 March.
Most major EU economies announce higher inflation
Allen-Reynolds said the decline in euro area headline consumer price growth came as somewhat of a surprise after rises in Germany, France and Spain. “But the data released today show that these increases were offset by declines in Italy and some smaller countries.”
Italy – the Eurozone’s third-largest economy – said Thursday that its initial estimate for EU-harmonised inflation fell to 9.9%, which was higher than market expectations of 9.5% but below the 10.7% mark in January.
The news followed Wednesday’s inflation news from Germany, the largest economy in the euro area, which said its initial estimate for consumer price growth rose to 9.3%, an unexpected increase that surpassed the 9.0% market forecast and the 9.2% rate reported in January.
France, the Eurozone’s second-largest economy, said Tuesday morning in a preliminary report that its EU-harmonised inflation rate rose to 7.2%, the highest since the euro was introduced in 1999. Spain, the euro area’s fourth-largest economy, announced Monday that its rate rose to 6.1% to exceed January’s 5.9%.
The latest consumer price increases come at a time when European economies continue to struggle. The Eurozone GDP only grew 0.1% in the final three months of 2022 compared to the previous quarter, when the expansion was 0.3%.
And last week Germany announced that it had downwardly revised its Q4 GDP growth estimate to a contraction of 0.4% from its preliminary report of 0.2% decline.