ECB intent on pushing ahead with interest rate hike
Published 17/06/2011 | 05:00
THE European Central Bank is set to go ahead with a hike in interest rates next month despite inflation in the EU falling to 0pc last month, economists have said.
The monthly rate of inflation fell to zero in May, with a slight fall in the annual rate of price rises in the currency union.
Inflation in the 17 countries that are in the eurozone was flat in May and eased slightly to 2.7pc when looked at over a year, after hitting a 30-month peak of 2.8pc in April, European Union data showed yesterday.
It was the sixth month in a row in which inflation was well above the 2pc target set by the European Central Bank.
However, inflation remains below the pre-crisis October 2008 level of 3.2pc.
The lowest 12-month change in consumer prices was registered in Ireland with a 0.2pc drop, followed by Sweden with a 1.5pc gain. The price change measure used by Eurostat excludes mortgage costs.
Economists said the dip in eurozone consumer price inflation and slight easing in core inflation will not stop the ECB from delivering the 0.25pc interest rate hike next month.
Goodbody Stockbrokers economist Dermot O'Leary said: "We will still get a rate hike in July despite the turmoil of the Greek crisis. Inflation is still above the ECB's target."
KBC Bank chief economist Austin Hughes said the ECB would remain nervous about price rises despite the easing of eurozone inflation.
The rate rise will go ahead next month, but there is now a question mark over whether there will be another one or two rate rises on top of the July one before the end of the year.
"It is touch and go whether there will be one or two further rate rises after July and before the end of the year. It depends on the Greece situation and how that plays out.
"But concerns about Greece are overshadowed by concerns about inflation," Mr Hughes said.
The ECB wants to keep inflation below, but close to, 2pc and signalled it would raise interest rates again in July after a 0.25pc increase in April to 1.25pc, to stem inflationary pressures from energy and food.
Each rise of 0.25pc pushes up the monthly repayments on every €100,000 borrowed by €15.