© Reuters. FILE PHOTO: Luxembourg Finance Minister Yuriko Backes and European Central Bank President Christine Lagarde talk during a eurozone meeting in Brussels, Belgium February 13, 2023. REUTERS/Johanna Geron
FRANKFURT (Reuters) – Core inflation in the euro zone will remain elevated in the near term, so a 50 basis point hike in interest rates from the European Central Bank later this month is increasingly certain, ECB President Christine Lagarde told Spanish media group Vocento.
The ECB has already hiked rates by 3 percentage points since July and essentially promised another half a percentage point hike on March 16, but investors have recently speculated an even bigger move given the poor data. on inflation.
Lagarde said the reported increase is now “very very likely”, but she also warned that underlying inflation, which filters volatile food and fuel prices, could remain uncomfortably high even if the rate of global inflation will decline in the coming months.
“In the short term, underlying inflation is going to be high,” Grupo Vocento said quoting Lagarde on Sunday.
Several policymakers have recently warned that the ECB’s rate hikes must continue until core inflation picks up and starts falling towards the ECB’s 2% target.
Core inflation hit a record high of 5.6% last month and some policymakers fear the rise is now due to a surge in service-sector wages, making price growth more sustainable and hard to break.
“We must continue to take all necessary measures to bring inflation down to 2%. And we will,” Lagarde said.
She added that the euro zone economy is holding up better than expected and that output is expected to pick up after near stagnation in the last quarter of 2022.