The ECB headache continues as inflation climbs again

NEW YORK (Mar 2)  Inflation in Europe has hit 5.8% vs analyst expectations of 5.3% year on year. Inflation in the Eurozone has been steadily climbing away from the 2% target that the ECB has and this reading does not do much to help the central bank. Away from today's reading, it does not look like things are getting much better as the Russian/Ukraine war is pushing up grains and energy prices alike. The spot WTI price is now well over $100/bbl and EUR/USD has also been falling which will contribute to imports becoming more expensive.

Looking ahead bets about the ECB raising interest rates could rise as analysts factor in the recent rise in prices. in a quick reactive comment, Bundesbank's Nagel said German inflation could average 5% this year well above previous forecasts. He added that Eurozone inflation is likely to be a record high. Lastly, speaking on the war he said it is impossible to estimate the economic impact of the war in Ukraine.

Prior to the event, Lloyds bank wrote "The Eurozone February CPI is forecast to show a further rise. Indeed, following stronger-than-expected reports for some member countries we have raised our forecast and now expect annual headline inflation to be 5.8% (from 5.1% in January), a new high in the single currency era. The European Central Bank, the ECB, continues to take some comfort from the fact that ‘core’ inflation is much closer to target. However, today’s reading is also likely to show a modest rise in that measure to 2.6% from 2.3%."

EUR/USD is currently trading 0.40% lower at 1.1077 and pushed a few pips lower after the reading. European indices have not really reacted to the news in the short term but there could be some volatility later in the session as both ECB's Lagarde and Fed's Powell are due to speak.

KITCO