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New Inflation figures keep pressure on ECB

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The preliminary reading for February showed that Eurozone HICP inflation was still lower than expected, but it continued to fall. Core inflation, which is the main focus of central banks now, rose to 5.6%, an all-time record. This is nearly three times the ECB’s target, and it leaves the central bank on target to continue to hike rates beyond the widely expected 50 basis points in March. This suggests that the pace of change, which was expected in May, is less likely.

Headline HICP inflation declined to 8.5% y/y. It was the fourth consecutive decline from the October peak of 10.6% in October 2013. The dovish side was very vocal in anticipating the new decline and said that headline rates were falling, but that prior rate hikes continue to affect the economy. Chief economist Lane this week also suggested that “there is significant evidence that monetary policy is kicking in”, and that “for energy, food and goods, there is a lot of forward-looking indicators saying that inflation pressures in all of those categories should come down quite a bit”.

There was no sign of this in this week’s numbers though, or indeed in any of the national…



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