Ireland was not the only country to see higher-than-expected inflation last month, denting hopes that the worst of the cost-of-living crisis has passed. The unwelcome surprise will give hawkish central bankers more reason to keep hiking rates after March.
urozone headline annual inflation was almost flat in February at 8.5pc – 10 basis points below its January reading – but food prices and core inflation jumped, Eurostat said on Thursday, with services and goods prices also seeing a steady rise.
Food has now overtaken energy as the biggest driver of higher prices, as rising costs continue to feed through to manufacturers and shortages of fresh produce have an impact.
Core inflation, which removes volatile food and energy prices from the mix, rose to a new record of 5.6pc.
Germany, France and Spain all saw prices accelerate in February, sending bond yields across the eurozone to some of their highest levels since the 2008 financial crisis.
In Ireland, hopes of a cost-of-living respite were dashed when the Central Statistics Office reported prices here rose 8pc in the year to February, up from 7.5pc in January.
Germany, France and Spain all saw prices accelerate in February
The higher-than-expected inflation rate comes despite energy prices falling between January and February, with the Government this week urging energy firms to pass on wholesale price falls to consumers.
Services inflation is also a concern, and could prove “sticky” in the longer term, especially as wages rise, ING’s senior eurozone economist Bert Colijn wrote in a note.
AIB’s latest purchasing managers index for the Irish services sector was in positive territory for the third month in a row in February, but cost hikes are still a problem for firms.
The index climbed to 58.2 from 54.1 in January, well above the 53.0 reading in the eurozone, which AIB chief economist Oliver Mangan said was “a robust rate of growth”. However, he said “inflationary pressures remain strong”.
“Businesses continued to report upward pressure on wages, as well as transport and energy costs, though the rate of increase in input prices eased somewhat further to a 20-month low.
“Meanwhile, higher costs continue to be passed on to customers, with the rate of increase in selling prices re-accelerating in the month.”
Sticky inflation is on the minds of ECB governors, according to minutes from the bank’s most recent meeting. Their comments signpost a hawkish summer.
Sticky inflation is on the minds of ECB governors
Central bankers at the February 2 gathering – which took place at a time when inflation appeared to be cooling – “said “core inflation and other measures of underlying inflation were likely to be stickier” and that it was “much too early to declare victory”.
They noted that “concerns of overtightening” were premature at the present high levels of inflation and in view of the likely persistence of underlying price pressures”.
The minutes indicate a slight bafflement at markets’ benign reaction to the ECB’s guidance on future rate hikes.
“Markets had taken a view that the global economy, including the euro area, was at an inflection point, with stronger growth and lower inflation than previously expected.
“Such positioning was putting market pricing at a considerable risk of correction should inflation prove more persistent.”