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Eurozone inflation hits a record 5.1%

Consumer prices in the euro area rose to a record 5.1% in January from a year earlier, keeping inflation higher than expected and increasing pressure on the European Central Bank to respond. with tighter monetary policy.

The sharp increase in energy and food prices compared to a year ago was only partially offset by a slower rate of growth in the prices of manufactured goods, which means inflation has picked up from the region’s record 5%. euro earlier in December.

That conflicts with widely expected eurozone inflation to fall earlier this year. Economists polled by Reuters had forecast an average eurozone inflation rate of 4.4% in January.

Compared to the previous month, consumer prices increased by 0.3%, indicating that underlying inflationary pressures continue to increase in the 19 countries that share a single currency.

Energy prices in the eurozone rose to a record 28.6% year-on-year in January, while unprocessed food prices rose 5.2%. Service prices continued to increase by 2.4% while the growth rate of goods prices slowed down to 2.3%.

Line chart showing eurozone inflation hitting record high

Core inflation, which includes more volatile food and energy prices, was 2.3%. This is down from 2.6% in December but is expected to fall below 2%.

The issue is likely to dominate the first ECB board meeting of the year on Thursday, even if most economists expect it to stick to its timetable of steady reductions, but don’t stop, buy assets this year, while keeping interest rates flat at negative. .

The euro rose 0.3% against the dollar to $1.1305 while Italian bonds fell as the country’s 10-year yield added 5 basis points to reach an 18-month high of 1.41 %.

Market this week pull expectations forward on the tightening of eurozone monetary policy, with an increase in the ECB deposit rate to minus 0.25% – from the current level of negative 0.5% – now priced in December, transactions in the short-term financing market.

Inflation lingers above the ECB’s 2% target has caused a split on the governing council, after the heads of the central banks of Germany, Belgium and Austria last month said they were committed to continuing. keep buying bonds for too long.

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