FRANKFURT, June 5 (Reuters) – European Central Bank President Christine Lagarde on Monday acknowledged “signs of moderation” in core inflation in the euro zone but reaffirmed it was too early to call a peak in that key gauge of price growth.
Lagarde’s comments were likely to cement market expectations for more interest rate increases from the ECB this month and the next despite a sharp fall in inflation last month.
“The latest available data suggest that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked,” Lagarde told European lawmakers.
Inflation in the 20 nations sharing the euro eased to 6.1% in May from 7.0% in April and core prices, which exclude volatile food and fuel and are closely watched by the ECB, rose by just 5.3% from 5.6%.
This has fuelled a debate about the need for further ECB hikes beyond a well-flagged increase at its next meeting on June 15, which will likely take the total to an unprecedented 4 percentage points in less than 12 months.
Lagarde conceded that the effects of past rate hikes “were starting to materialise” and were likely to “strengthen in the coming years”.
But she reaffirmed the ECB’s line that rates would need to be increased again “to levels sufficiently restrictive” to bring inflation down to the ECB’s 2% target and that they “will be kept at those levels for as long as necessary”.
Reporting By Francesco Canepa
Editing by Balazs Koranyi and Bernadette Baum