European Central Bank President Christine Lagarde expressed on Monday that there are "signs of moderation in core inflation in the Eurozone, but it is too early to declare that this key measure of price growth has peaked." Lagarde's remarks are likely to bolster market expectations for further interest rate hikes by the US central bank in the upcoming months, despite a significant drop in inflation last month. Lagarde stated to European lawmakers, "The latest available data indicates that indicators of core inflationary pressures remain high, and while some show signs of moderation, there is no clear evidence that core inflation has peaked yet."
Lagarde acknowledged that the effects of previous interest rate hikes are beginning to materialize and are likely to intensify in the coming years. However, she reiterated the European Central Bank's stance that "interest rates will need to be increased again to restrictive levels sufficient to reduce inflation to the bank's target of two percent, and they will be maintained at these levels for as long as necessary."
Inflation in the twenty Eurozone countries fell to 6.1 percent in May from 7.0 percent in April, and core inflation, which excludes volatile food and fuel prices and is closely monitored by the European Central Bank, only declined to 5.3 percent from 5.6 percent. This has sparked debate about the need for further interest rate hikes, amid expectations that the bank will raise rates in its next meeting on June 15, potentially bringing the total hike to four percentage points within less than 12 months, an unprecedented level.
