Core Inflation on Upward Trend, Further Rate Hikes Expected, ECB Execs Say

Amid underlying inflationary pressures, further interest rate increases may still be needed, members of the European Central Bank’s Governing Council have admitted. At the same time, the cycle with the highest hikes may soon be over, the officials indicated.

Two members of the Governing Council of the European Central Bank (ECB) have shared their assessments of the inflation outlook in the eurozone and expectations regarding the monetary authority’s next moves in that respect, Bloomberg reported.

The biggest part of the current cycle of interest-rate rises is over, although more may follow, according to Boris Vujčić. Speaking in his home country on Wednesday, the governor of the Croatian National Bank said that further hikes can be expected if core inflation, or long run inflation, remains above 4%.

Vujčić explained that while consumer-price gains have been easing, mainly due to base effects, underlying pressures, excluding volatile items like food and energy, remain high.

The Governing Council is the Eurosystem’s main decision-making body, which comprises the six members of ECB’s Executive Board plus the governors of the national central banks of the 20 countries that have adopted the common European currency.

During the same event in Croatia, Vujcic’s colleague at the Council, Boštjan Vasle, told participants that growth in prices of services, among other areas, is increasingly moving away from the ECB’s 2% target. He was quoted as stating:

Core inflation is clearly on an upward trend.

Vasle, who is the governor of Bank of Slovenia, added that more monetary tightening is likely required, warning that earlier shocks may have not fully passed through the system yet.

Other ECB representatives have recently suggested that the end of the euro zone’s most aggressive period of rate increases is in sight. However, despite persisting concerns over the health of the banking sector, they believe that further action is necessary to bring inflation back under control.

Among them is the head of Austria’s central bank, Robert Holzmann, who said this week that another half-point step remains “on the cards.” Policymakers will announce their next decision on the rates in May. Last week, Bank of France Governor Francois Villeroy de Galhau hinted that “we may possibly still have a little way to go.”

In March, The European Central Bank raised the deposit rate from 2.5% to 3%, even against the backdrop of a deepening crisis with Switzerland’s banking giant Credit Suisse. Amid the current uncertainty, ECB executives have been less willing to predict future moves.

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