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Belgium, (Brussels Morning Newspaper) Core inflation in the eurozone continued to pick up pace in January, rising from approximately 6.9% to about 7%.
Eurostat data released on Wednesday shows that inflation stood at 8.5% in January, down from 9.2% in December last year, but economists have raised concerns about the reliability of the figures, according to Reuters reporting.
Inflation peaked at roughly 10.6% in October, but the European Central Bank (ECB) warned that core inflation remains strong and announced additional interest rate hikes aimed at reining in growth of prices.
The ECB is expected to up rates by additional 50 basis points this week, to 2.5%, as the bank is concerned that inflation will get entrenched.
Eurostat records show that inflation was largely driven by growth of industrial goods and processed food prices, while price of services dropped slightly.
Data from Germany is missing for January, which is why Eurostat used estimates, adding to unreliability of the data. In addition, economists point out that price changes at the start of the year make January figures unusually volatile.
Separate data released on Wednesday shows that registered unemployment stagnated at 6.6% in December, the lowest level on record, maintaining upward pressure on wages.
Positive feedback loop
Economists have warned that core inflation could become entrenched significantly above ECB’s target of 2%, pointing out that the effects of high energy prices are still spilling over, which could lead to self-reinforcing inflation.
Markets expect the ECB to continue upping interest rates to 3.5%, predicting that the EU central bank will up rates by additional 100 basis points after this week’s expected hike.
Monetary doves are expected to push back against ECB’s plan to continue upping rates to rein in inflation, arguing that more is needed for implemented hawkish policies to take effect.
Eurostat pointed out that January was the third consecutive month of decline of inflation. Economists who took part in a Reuters poll expected eurozone inflation to stand at 9% in January, approximately half a percentage point above Eurostat’s 8.5% estimate.The ECB is to implement additional rate hikes at the meeting on Thursday and announce plans for the coming period.
