Sticky inflation print reinforces a continued aggressive stance from the ECB
Eurozone core inflation unexpectedly accelerated to 5.6% year-on-year in February against hopes in the markets for a slower rate of 5.3%. The headline figure which includes food inflation came in at an 8.5% annual pace, again ahead of expectations of a rate of 8.3%, although this was lower than the previous month’s rate of 8.6%. But these sticky inflation prints reinforce a continued aggressive stance from the European Central Bank (ECB) which is expected to raise base rates by 50 bps two weeks from now. Another conundrum for the ECB to deal with is a slow increase in the Euro-area unemployment rate, with February’s rate at 6.7% confirming the direction of travel. This is the second month of unemployment increasing albeit from post pandemic record lows, but these things do not usually happen in isolation. Rising unemployment with stubbornly high inflation and corresponding rising interest rates are not the best ingredients for strong economic growth.
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