ECB policy-makers are almost certain to raise rates by half a percentage point to 2.5% on Thursday, and the biggest question is how much more tightening it will signal
Euro zone inflation eased for the third straight month in January but any relief for the European Central Bank may be limited as underlying price growth held steady and concerns have already been raised about the reliability of the figures.
The drop in headline inflation is unlikely to expunge concerns among conservative policy-makers that rapid price growth is becoming entrenched, a worry reinforced by high underlying inflation on Wednesday. “As the ECB’s attention is gradually turning away from the main measure and onto core inflation, we think that falls in headline inflation will do little to stem the central bank’s hawkishness,” said Mateusz Urban at Oxford Economics.
“Let’s not get carried away by a number that is missing a third of the information. For all practical purposes, the January inflation print is delayed,” Nordea said in a note. Euro zone unemployment held steady at 6.6 per cent in December, its lowest rate on record, separate data showed on Wednesday. Policy doves from the bloc’s south are likely to fight back, however, arguing that the economy has already started to respond and more time is needed for past policy moves to take effect.
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