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Euro zone inflation posts record drop to 6.9% as energy falls


Eurozone inflation dropped at a record rate to 6.9% in March, driven by a sharp decline in energy prices, Eurostat data showed on Friday, according to Politico.

In February, headline inflation stood at 8.5%, the main reason for this 1.6 percentage point fall was the drop in energy costs. Food prices contributed the most to the overall inflation reading for March, CNBC reports.

Core inflation which excludes volatile energy, food, alcohol and tobacco prices rose slightly from the previous month. It reached an all-time record of 5.7% in March, from 5.6% in February.

“Policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high,” Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics, said in a note on Friday.

He added that the ECB is likely to keep raising rates despite the drop in the headline figure.

ECB Member Isabel Schnabel said Thursday that headline inflation has started to decline, but core inflation is proving sticky.

The ECB raised rates by 50 basis points in March, bringing its main benchmark rate to 3%. However, it did not give any indication of potential rate decisions in the months ahead.

Recent banking turmoil has raised questions about whether central banks have been too aggressive in moving interest rates to tackle inflation. ECB Chief Economist Philip Lane has said that more rate hikes will be needed to address high inflation if the banking instability dissipates.