- The latest figures come just days before the European Central Bank announces a new monetary policy decision.
- The central bank embarked on its current walking path in July 2022, when it raised the key interest rate from -0.5% to zero. The main interest rate of the European Central Bank is currently 3%.
Detail of the fish and seafood stall at the Central Market in Valencia, Spain.
Europa Press News | Europa Press | Getty Images
The headline inflation rate in the eurozone rose in April, according to preliminary data released on Tuesday, and remained well above target levels set by the European Central Bank, but core price growth showed a surprising slowdown.
Overall inflation came in at 7% for the last month, according to Eurostat, after falling to 6.9% in March. At the same time, core inflation, which excludes food and energy prices, was 5.6% in April – from 5.7% in March. Analysts polled by Reuters had estimated 7% for headline inflation and 5.7% for core inflation.
The latest figures come just days before the European Central Bank is due to announce a new monetary policy decision on Thursday. Rather than providing some clarity on how much the central bank has raised interest rates, the latest figures have somewhat muddied the picture.
Market players were debating whether the central bank would raise 50 or 25 basis points on Thursday. On the one hand, the rise in headline inflation may prompt hardline members of the European Central Bank to demand another 0.5 percentage point increase. On the other hand, an unexpected slowdown in core rate growth could tilt the balance towards a more pessimistic stance and lead to a 25 basis point rate hike.
The central bank embarked on its current walking path in July 2022, when it raised the key interest rate from -0.5% to zero. The main interest rate of the European Central Bank is currently 3%.
Despite the continuous increase in the inflation rate, inflation remains above the European Central Bank’s target of 2%. Estimates published by the International Monetary Fund last week suggest that headline inflation will not approach the European Central Bank’s target until 2025.
“There needs to be more tightening, and when the final interest rate is reached, that final rate needs to be maintained for a longer period, because core inflation…is high, and it is very persistent. And there is nothing worse than pausing anti-inflation efforts as well,” he said. Alfred Kammer, director of the International Monetary Fund’s European division, told CNBC on Friday, “If you need to do it all over again, the costs to the economy are much greater.”