By Jesús Aguado
MADRID (Reuters) -Core inflation in the euro zone is likely to stay high for the rest of 2023, ECB policymaker Pablo Hernandez de Cos said on Monday, leaving the door open for further interest rate hikes.
Inflation in the euro zone dropped by the most on record in March, but growth in core prices accelerated, data showed last month.
“Core inflation is expected to remain elevated in the rest of the year … that may delay convergence towards the 2% target in the medium run and that will therefore need close monitoring,” De Cos, who also chairs Spain’s central bank, told a financial event in Washington, D.C.
Last year, euro zone core inflation averaged 3.9%, but it reached 5.7% in March, an all-time high.
In mid-March, the ECB cut its inflation projections but figures still point to price growth above its 2% target for years to come.
De Cos said that if the ECB’s baseline scenario were to be confirmed “we still have ground to cover to make sure that inflation pressures are stamped out.”
The inflation path in the March staff projections was based on a risk-free forward curve that continued to point to expectations of further interest rate increases.
On Monday, De Cos said that these projections were subject to uncertainty, which “means we are neither committed to rise further nor are we finished with hiking rates.”
The ECB has raised rates by a combined 350 basis points since July but did not provide specific guidance for its May 4 meeting, arguing that turbulence in the financial sector required extra caution.
Although recent financial sector tensions have been contained so far, De Cos added that if they persisted or intensified, “a scenario could materialise of significantly tighter credit and financial conditions and worsening confidence, with downward effects on economic activity and prices.”
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