Joachim Nagel, European Central Bank Governing Council member and Bundesbank President, said that given the further increase in core consumer inflation, which reached a record high in January, the ECB may be forced to significantly raise the interest rate again after the March meeting.
The final data published by Eurostat showed that consumer price growth slowed in January, confirming economists' forecasts and reaching its lowest level since June 2022. According to the report, the consumer price index rose by 8.6% per year after an increase by 9.2% in December. Still, the rate remained well above the ECB's target of 2%. The core consumer price index - excluding energy, food, alcohol and tobacco - rose by 5.3% per year after an increase by 5.2% per year in December. The ECB has already promised another 0.5% interest rate hike in March and markets then see another 0.75% of moves there, putting the rate peak in the vicinity of 3.75%.
"Core inflation is likely to remain high for some time, and even if it starts to decline, it will be a very slow process. In view of this, the ECB may need another significant rate hike after the March meeting," the Bundesbank President said, adding that despite the recent aggressive measures of the ECB, the rate has not yet reached the restrictive territory.
Meanwhile, Nagel warned that the premature termination of the interest rate hike could be a "cardinal mistake", as the risk of doing too little to combat inflation outweighed the cost of doing too much.