Eurozone inflation fell lower than many economists forecast in February, fuelling expectations that the European Central Financial institution will elevate rates of interest considerably larger this 12 months.

Client value progress for the area dipped barely to eight.5 per cent within the 12 months to February, from 8.6 per cent in January, the EU statistics company stated on Thursday. Whereas vitality value inflation slowed, value rises for companies, items and meals all gained tempo.

Thursday’s figures outstripped the expectations of economists polled by Reuters that inflation within the bloc would fall to eight.2 per cent.

Analysts stated the info indicated inflation was prone to fall extra slowly for the remainder of the 12 months than beforehand anticipated and that the ECB would preserve elevating charges even after an anticipated 0.5 proportion level rise on March 16.

“We predict ECB hawks will use at present’s knowledge to name for the financial institution to increase its string of fifty foundation level charge hikes into the second quarter,” stated Melanie Debono, economist at analysis group Pantheon Macroeconomics.

She advised these arguments might be bolstered by knowledge additionally launched on Thursday exhibiting the resilience of the eurozone labour market — unemployment remained at 6.7 per cent — and a brand new eurozone document excessive for core inflation.

Core inflation, which central bankers watch carefully because it excludes vitality and meals costs to provide a clearer image of underlying pressures, rose to five.6 per cent — up from 5.3 per cent within the earlier month.

ECB president Christine Lagarde stated earlier than Thursday’s figures have been launched that whereas inflation was prone to have risen “slightly bit” in February, it was on monitor to fall “rather more” in March, because of the base results of year-on-year comparisons with final 12 months’s excessive vitality costs.

Borrowing prices for eurozone governments fell after the flash estimates, indicating some buyers had anticipated excessive February inflation figures. Germany’s two-year borrowing prices fell barely to three.18 per cent, however stay greater than 50 per cent larger than in December.

Lagarde instructed Spanish TV station Antena 3 on Thursday that rising meals costs would stop inflation from falling in a straight line and that extra charge rises could also be wanted after this month.

The ECB has raised charges by 3 proportion factors since final summer season. Monetary markets are pricing in a bounce within the financial institution’s deposit charge to 4 per cent later this 12 months, up from 2.5 per cent. That may overtake the 2001 peak of three.75 per cent, when the ECB was nonetheless making an attempt to shore up the worth of the newly launched euro.

When the ECB determined to proceed elevating charges at first of February its governing council members agreed that “it was a lot too early to declare victory” within the struggle to tame inflation, in accordance with the minutes of the assembly printed on Thursday.

“The view was expressed that, given the nonetheless substantial distance to the possible terminal charge, there continued to be worth . . . in front-loading charge hikes at the moment stage,” the minutes stated.

Fee-setters warned that it may take time for value pressures to ease as a result of “the sturdy and quick pass-through noticed as vitality costs rose couldn’t be anticipated to easily reverse swiftly as costs declined”, they stated.

In contrast with the earlier month eurozone client costs rose 0.8 per cent in February, rebounding from a month-to-month decline of 0.2 per cent in January, indicating a resurgence of value pressures.

Annual inflation rose in half the nations that make up the 20-member single foreign money zone, the place value progress ranged from greater than 20 per cent in Latvia to only under 5 per cent in Luxembourg. Inflation was larger in Germany, France and Spain.

Meals, alcohol and tobacco costs within the eurozone rose by 15 per cent in February, their quickest charge on document. Vitality value rises slowed to 13.7 per cent, the bottom charge since June 2021. Providers inflation jumped from 4.4 per cent in January to 4.8 per cent in February.

The figures point out companies corporations are nonetheless being hit by the knock-on impact of final 12 months’s vitality shock and are passing on the price of larger wage progress, which has doubled within the eurozone prior to now 12 months to five per cent, in accordance with a job advert tracker monitored by the ECB.

“Surveys level to continued beneficial properties in employment,” stated Jack-Allen Reynolds, an economist at analysis group Capital Economics. “That ought to preserve companies inflation, which accounts for practically two-thirds of core inflation, very sturdy.”