Home » Euro inflation rises more than expected, ditto core. New rate trouble for Lagarde’s ECB and markets

Euro inflation rises more than expected, ditto core. New rate trouble for Lagarde’s ECB and markets

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Euro inflation rises more than expected, ditto core.  New rate trouble for Lagarde’s ECB and markets

(updating)

No way, inflation in the euro area continues to remain stubborn. This is what emerges from the preliminary reading of the Eurozone consumer price index just released by Eurostat.

The CPI data rose on an annual basis by 2.6%: inflation growth has the pace therefore slowed down but was confirmed higher than the +2.5% expected by the consensus of economists.

There was also an about-face for the core CPI, which rose at a rate of 3.1%, compared to +3.3% in January. However, the outlook was for a greater weakening, i.e. an increase in the core index of +2.9%.

There has been great anticipation in recent days for the data relating to inflation in the euro area for February, eagerly awaited by the markets to anticipate what could be the next moves on rates by Christine Lagarde’s ECB.

Upcoming moves, given that the Eurotower Board of Directors will meet next Thursday, March 7, announcing its monetary policy decisions, and also reeling off its outlook on the Eurozone economy.

The trepidation is maximum, in a market that has decidedly dampened, in recent weeks, the bets on the imminent arrival of rate cuts, which had flared up since the end of 2023, when the ECB announced the last act of the ‘year.

In recent weeks, speculations on a Eurotower ready – finally for many – to throw a lifeline to the economic fundamentals of the euro area have been scuttled by the declarations released by Lagarde, still obsessed by the fear of inflation, that some macro data, which confirmed the caution of those who believe that, despite the criticism, the ECB president may be right in taking her time to cut rates.

The last meeting of the ECB Governing Council dates back to 25 January, the day in which Frankfurt, as expected, in what was the the first act of 2024 confirmed the main reference rates of the Eurozone.

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To be precise, the rates on main refinancing operations, marginal refinancing operations and deposits with the central bank they were left unchanged at 4.50%, 4.75% and 4.00%.

In the last few hours, a survey released by the Reuters news agency has revealed economists’ expectations on what the ECB’s next monetary policy moves will be, in particular on when the much desired and loudly requested rate cuts will arrive. as well as by the markets, by families and companies, still struggling with mortgage installments and particularly high financing costs. The result of another survey in which Bloomberg questioned several economists was also released today.

The result of the Bloomberg survey, in particular, will not please either the markets or families. The economists interviewed in fact found themselves in agreement with the hawks of the ECB, warning that cutting interest rates too early would be a worse mistake than the alternative of cutting rates too late.

ECB Cutting Too Soon Would Be Worse Than Delaying, Survey Shows: it is the Bloomberg article that summarizes the outcome of the survey with which Bloomberg called the economists to report, questioning them on what the ECB should do, on the one hand to keep under I control the growth of inflation, preventing any flare-ups, on the other hand so as not to give the final blow to the Eurozone economy.

Almost two thirds of economists agreed with Lagarde: moving too quickly on rates to overturn those rate increases that the ECB announced without interruption from July 2022 until September 2023 would cause damage to the economy greater than that which would be inflicted if the Eurotower decided to wait too long before starting to cut the cost of money. Experts agreed that the first rate cut will take place in June.

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But let’s go back to the euro area inflation data published today by Eurostat. The good news is that both the consumer price index of the euro area (CPI, consumer price index) and the core component (the one net of the prices of energy and food goods, which are by their nature more volatile”, have put a further brake on increases. The bad news is that the economists’ consensus was however for lower numbers, as was the case with other macro data that were released in recent days, and which can hardly be considered a good omen for the dovish, or for the doves who ask the ECB to cut rates as soon as possible.

From the preliminary reading of the data it emerged that the prices that recorded the highest growth rate were those of food, alcohol and tobacco, up by 4% in February, on an annual basis, however at a slower pace than the +5 .6% in January. Inflation in the services sector showed a practically flat trend, rising by 3.9%, compared to +4% in January, while the prices of industrial goods rose by 1.6%, slowing down compared to the + 2% of January. But the disinflationary effect of energy prices was lower: prices fell by 3.7% on an annual basis, compared to the -6.1% decline in January.

(currently being written)

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