Eurozone inflation posts record drop, but core prices accelerate

INFLATION in the eurozone dropped by the most on record in March, but growth in core prices accelerated, Eurostat data showed on Friday (Mar 31), likely strengthening the case for more interest rate hikes by the European Central Bank.

Consumer prices rose by 6.9 per cent in March after an 8.5 per cent increase in February, implying the biggest deceleration since Eurostat started collecting data in 1991.

The fall was almost exclusively due to a drop in energy prices compared with March last year, when they had surged in the wake of Russia’s invasion of Ukraine.

But an index that excludes energy and food prices, known by economists as core inflation and seen as a better gauge of the underlying trend, accelerated slightly to 7.5 per cent from 7.4 per cent in February.

Analysts polled by Reuters had expected headline inflation in the 20 countries that share the euro to come in at 7.1 per cent and core inflation at 7.5 per cent.

After a record streak of rate rises, the ECB has refrained from committing to more hikes, saying this will depend on whether the current turmoil in the banking sector subsides and on data including underlying inflation.

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But several ECB policymakers including chief economist Philip Lane have said recently that more increases in borrowing costs are likely to be needed to bring inflation back to the central bank’s 2 per cent target. REUTERS