Detail of a fish and seafood stall in the central market in Valencia, Spain.
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Eurozone headline inflation rose in April, remaining well above the European Central Bank’s goal levels, in line with preliminary data released on Tuesday, but core price growth showed a surprising slowdown.
In keeping with Eurostat headline inflation was 7% last month after falling to six.9% in March. At the same time, core inflation, which excludes food and energy prices, amounted to five.6% in April from 5.7% in March. Analysts polled by Reuters estimated that total inflation will amount to 7% and core inflation to five.7%.
The most recent figures come days before the ECB is resulting from announce a recent monetary policy decision on Thursday. Fairly than providing some clarity on how much the central bank can raise interest rates, the latest data has blurred the picture somewhat.
Market players debated whether the central bank would hike by 50 or 25 basis points on Thursday. On the one hand, an increase in headline inflation may prompt hawkish ECB members to argue for an additional 0.5 percentage point hike. On the other hand, an unexpected slowdown in core price growth could tip the scales more dovishly and result in a 25 basis point compromise hike in interest rates.
“A slight decline in core HICP inflation in April left it near a record high and is not going to settle the debate between 25bps and 50bps for the ECB this week,” Andrew Kenningham, chief European economist at Capital Economics, said in a note.
Nevertheless, Carsten Brzeski, ING’s global macroeconomic head, said: “The sticky inflation data clearly underscores the need for continued hikes, but given last week’s weaker-than-expected GDP growth report and today’s weak credit growth and credit demand data speak for behind the slowdown, the slowdown in the pace and size of interest rate hikes has turn out to be stronger.
In keeping with preliminary data on Friday, the eurozone economy grew by 0.1% in the first quarter of the yr. It was below market expectations.
The central bank entered its current path of increases in July 2022, when it lowered the essential interest rate from -0.5% to zero. The ECB’s key interest rate is currently 3%.
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Despite consistent rate hikes, inflation stays above the ECB’s 2% goal. Estimates published last week by the International Monetary Fund suggested that headline inflation would only approach the ECB’s goal in 2025.
“More tightening is required, and once the final rate is reached, that terminal rate must be held longer because core inflation is…high and really persistent. And there may be nothing worse than stopping the fight against inflation early or abandoning it too soon, because if you will have to do it a second time, the cost to the economy is far greater,” Alfred Kammer, director of the IMF’s European department, told CNBC on Friday.