- The latest figures come just days before the ECB is due to announce a new monetary policy decision.
- The central bank started its current trajectory in July 2022 when it cut its policy rate from -0.5% to zero. The key interest rate of the ECB is currently 3%.
Detail of a fish and seafood stall in the Central Market of Valencia, Spain.
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Headline inflation in the euro zone rose in April, staying well above the European Central Bank’s target level, according to preliminary data released on Tuesday, but core price growth showed a surprising slowdown.
Headline inflation was 7% 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 – down from 5.7% in March. Analysts polled by Portal had put headline inflation at 7% and core inflation at 5.7%.
The latest figures come just days before the ECB announced a new monetary policy decision on Thursday. Rather than provide some clarity on how much the central bank could raise rates, recent numbers have blurred the picture somewhat.
Market participants debated whether the central bank will hike 50 or 25 basis points on Thursday. On the one hand, the rise in headline inflation could prompt the hawkish members of the ECB to argue for another 0.5 percentage point hike. On the other hand, the unexpected slowdown in core price growth could tip the balance towards a more dovish stance and lead to a 25 basis point rate hike.
The central bank started its current trajectory in July 2022 when it cut its policy rate from -0.5% to zero. The key interest rate of the ECB is currently 3%.
Despite steady rate hikes, inflation remains above the ECB’s 2% target. Estimates released last week by the International Monetary Fund suggested headline inflation will fall well short of the ECB’s target into 2025.
“Further tightening is needed and when the terminal rate is reached then that terminal rate will need to be maintained for longer because core inflation is … high and very stubborn. And there’s nothing worse than halting the anti-inflation effort too soon, or giving up too soon, because if you have to do it a second time, the cost to the economy is so much greater,” said Alfred Kammer, director of the Europe Department at the IMF, told CNBC on Friday.