FRANKFURT, GERMANY – European Central Bank president Christine Lagarde said on Monday that a closely watched measure of eurozone inflation does not appear to have peaked yet, fueling expectations of further interest rate hikes.
She told a hearing of the European parliament that the latest data suggests “indicators of underlying inflationary pressures remain high.
“Although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked,” she said.
Underlying – or core – inflation, which strips out volatile energy, food, alcohol and tobacco prices – came in at 5.3 percent in May, down from 5.6 percent in April.
Headline inflation for the 20 countries that use the euro dipped more than expected to 6.1 percent, from 7.0 percent the previous month.
However, consumer price rises remain well above the central bank’s two-percent target, and the stubbornness of underlying inflation in particular is worrying policymakers.
While prices initially surged on the back of high energy costs after Russia invaded Ukraine, the ECB is now concerned that higher wage demands are pushing up inflation.
Lagarde told Monday’s hearing in Brussels that “wage pressures have strengthened further as employees recoup some of the purchasing power they have lost as a result of high inflation”.
The ECB has raised its key rates by 3.75 percentage points since embarking on an unprecedented campaign of monetary tightening in July last year.
The Frankfurt institution “will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two percent medium-term target, and will be kept at those levels for as long as necessary,” Lagarde said.
The ECB chief said last week that policymakers will continue lifting borrowing costs, although at a more gradual pace.
The bank will unveil its next monetary policy decisions on June 15, with observers betting on a rate hike of 25 basis points.