ECB to face high core inflation in the near future

Christine Lagarde, European Central Bank’s (ECB) president, told Spanish media on Sunday that the inflation in the euro zone will stay high in the near future, as the bank will increase 50 basis point interest rate later this month.

ECB raised the rate by a percentage of 3 points in July, and promised another half a percentage point increase on the 16th of March. However, investors are expecting a bigger move due to the poor inflation data.

Lagarde said that the increase is now very very likely, while she also warned that the inflation could stay high even as the overall inflation rate drops in the coming months.

Spain’s media company Grupo Vocento stated Lagarde saying “in the short term, core inflation is going to be high.”

Policymakers have warned that the ECB rate hikes have to continue until core inflation turns around and starts falling towards the ECB’s 2 percent target.

The inflation rose to a high record of 5.6 percent last month, while some policymakers are worried that the increase is due to a rise in wages in the services sector. This will make price growth more durable and hard to break.

Lagrade said “we must continue to take whatever measures are necessary to bring inflation back to 2 percent. And we will do so,” Reuters mentioned.

She also said that the euro zone economic situation is holding up better than was expected, and the output should increase from near stagnation in the closing quarter of 2022.