Inflation rebounded in France and Spain in February, raising the cost of borrowing for European governments as doubts grew over how quickly the European Central Bank would halt interest rate hikes.
French consumer prices rose 7.2 percent in the year to February, driven to the highest rate since the euro was introduced in 1999 by faster increases in food and service prices. Economists polled by Reuters had expected French inflation to stagnate at January’s 7 percent level.
Consumer prices growth in France and Spain resumed their upward trend in February, driven by higher food and energy costs, official statistics showed on Tuesday. It accelerated to 6.1 percentfrom 5.9 percent in January and ahead of economists’ expectations for a decline to 5.5 percent, despite the government cutting food taxes in January.
The report noted that food inflation edged higher to 14.5% from 13.3%, services prices were up to 2.9% from 2.6%, while prices of manufactured goods rose slightly to 4.6% from 4.5%, with the end of winter sales. Energy prices jumped 14.0% on year in February, Insee said.
The EU-harmonized index stood at 7.2% compared to 7% in January.
Meanwhile in Spain, which succeeded in containing price growth in the second half of 2022, inflation has now risen for two consecutive months in annual terms. Consumer prices increased 6.1% year-on-year in February, the National Statistics Institute (INE) reports.
European government bond prices fell in response on Tuesday, pushing the yield on Germany’s interest-sensitive two-year bond up 0.08 percentage point to 3.15 percent, its highest since the 2008 financial crisis.
The numbers suggest euro-zone inflation could prove more persistent than hoped ahead of the release of February price growth data for the bloc on Thursday, which showed economists predicting a slowdown to 8.1 percent from January’s 8.6 percent expect.
“There are clear upside risks for euro inflation in February,” said Jörg Kramer, chief economist at German lender Commerzbank.
Preliminary data showed that higher electricity and food prices were the key drivers of the increase.
Core inflation, which excludes volatile fresh food and energy prices, stood at 7.7% year-on-year, up from 7.5% recorded in January. Consumer prices, harmonized for comparison with other European Union countries, rose to 6.1% in February in annual terms from 5.9% in the previous month.
“The increase in Spain’s headline EU harmonized inflation is another reminder that the path of price growth will be choppy and sticky on its way down, as underlying price pressures remain strong,” Bloomberg economist Ana Andrade said. “While base effects will dominate over the next few months, bringing inflation meaningfully down by the summer, we still expect it to end the year at above 5%,” she added.
Economists project inflation in Spain and France will continue rising in the coming months, prompting more interest rate hikes by the European Central Bank. The ECB has already promised to raise rates by 50 basis points to 3% in March, to get soaring inflation in the 20-nation Eurozone under control. It may still need to raise interest rates significantly beyond March, as inflation remains too high, Bundesbank President Joachim Nagel warned earlier.
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