Inflation in the euro area stood at 8.5 percent in February. This was announced by the European statistical office Eurostat on Thursday after a first estimate. In January, the rate was 8.6 percent, in December 2022 at 9.2 percent.

Christian Siedenbiedel

Editor in business.

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This means that inflation in the euro area remains well above the European Central Bank's (ECB) target of 2 percent. ECB President Christine Lagarde has announced that the central bank intends to raise key interest rates by another 16.0 percentage points at the next meeting of the ECB Governing Council in two weeks' time on 5th March. Bundesbank President Joachim Nagel said that this should not be the end of the interest rate hikes. In addition, he calls for the central banks' holdings of bonds from the bond purchase programmes to be reduced faster than planned. If inflation proves to be so persistent, Nagel said, monetary policy must be even more persistent.

Higher inflation rates in France and Spain

While energy prices are showing signs of a certain slowdown after an enormous increase last year and the development of food is mixed, prices for services are now also rising in some cases noticeably. In addition, political interventions that are either started or terminated are having an impact on the inflation rate in several euro area countries. In some cases, wages are now rising significantly in response to high inflation, although often not entirely around the level of inflation, so that real wages, i.e. wages after deduction of inflation, tend to decline. ECB Executive Board member Isabel Schnabel has at least indicated that the central bank is following very closely whether this will result in a new wave of costs.

In Germany, according to national calculations, the inflation rate remained at 8.7 percent in February. According to the European calculation method of the Harmonised Index of Consumer Prices (HICP), however, it has risen slightly, from 9.2 to 9.3 percent. The Federal Statistical Office had recently revised the consumer index for the national calculation method and converted it to a new base year. One of the consequences of this was that the inflation rates of both methods of calculation differed more from each other. For monetary policy, the European method of calculation is taken into account, which are currently the higher values.

The major euro countries France and Spain had also reported higher inflation rates for February. In France, the inflation rate rose from 7 to 7.2 percent. In Spain, which had had unusually low inflation among the euro countries for a while, the rate rose from 5.9 to 6.1 percent.

On the bond market, the partly unexpectedly high inflation rates of some euro countries had already spurred speculation on a tougher approach by the ECB. As a result, the yield on the ten-year German government bond temporarily reached its highest level since 2011.

In March, a technical effect could lower the rate

March could now be an exciting month in terms of inflation: Then inflation rates could fall noticeably, at least economists hope.

The reason is a so-called statistical base effect: a year ago, energy prices rose exceptionally strongly in March, immediately after the start of the Ukraine war. Since then, the inflation rate, which compares the current level of consumer prices in a month with that in the same month of the previous year, has been particularly high.

From March onwards, however, the current level of energy prices will be compared with those from the period after the beginning of the war. Then the rates of price increase over the year will no longer be quite as high. Jens Ulbrich, the Bundesbank's chief economist, expects energy prices to calm down to a certain extent from the spring onwards in headline inflation, i.e. the overall inflation rate.