Eurozone inflation comes in higher than expected

Eurozone inflation fell less than many economists forecast in February, fuelling expectations the European Central Bank will raise interest rates several more times this year.

Consumer price growth eased slightly to 8.5 per cent in the year to February, from 8.6 per cent in January, as prices for services, goods and food rose faster even though energy price growth slowed. Economists polled by Reuters had expected the figure to fall to 8.2 per cent.

Core inflation, which central bankers watch closely as it excludes energy and food prices to give a clearer picture of underlying pressures, rose to a new eurozone record of 5.6 per cent, up from 5.3 per cent in the previous month.

ECB president Christine Lagarde said on Thursday that while inflation was likely to have risen “a little bit” in February, it was on track to fall “much more” in March, due to the base effects of year-on-year comparisons with last year’s high energy prices.

The ECB has raised rates by 3 percentage points since the summer and has signalled it intends to raise borrowing costs by a further half-point this month.

Lagarde told Spanish TV station Antena 3 that rising food prices meant the downward path of inflation would not be steady and more rate rises may be needed after March.

Financial markets are pricing in a jump in the ECB’s deposit rate to 4 per cent later this year, up from the current 2.5 per cent. That would overtake the 2001 peak of 3.75 per cent, when the ECB was still trying to shore up the value of the newly launched euro.

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