Rise in eurozone core inflation nails European Central Bank rate rise in March

Revised Eurostat estimates show underlying prices – minus volatile energy, food, alcohol and tobacco – rose 5.3pc in January in the 20-member currency zone, compared to the same month in 2022.

It is the highest rate recorded in the eurozone’s 24-year history and 10 basis points above a flash estimate earlier in the month.

While energy price hikes are slowing, climbing food prices and higher core inflation led the EU statistics agency to revise up its January headline inflation figure to 8.6pc, from 8.5pc on Thursday.

Irish inflation was revised down to 7.5pc from a 7.7pc estimate, below the consumer price index for the same month of 7.8pc. The CPI measures a slightly different basket of goods.

Higher core inflation will give ECB hawks more ammunition to raise rates after March, despite any potential hit to growth.

Deutsche Bank is now assuming a peak of 3.75pc in the summer, although France’s central bank chief said this week that analysts may have “overshot” estimates.

Growth forecasts for Ireland and the EU have been revised up after a better-than-expected end to 2022.

But higher interest rates mean the eurozone economy is set to flirt “with zero growth for most of the year”, ING economists warn.

The strength of Ireland’s multinational sector means growth here will be more than triple the European average.

“It now seems likely that the Irish economy will grow in a more significant manner in 2023 than many of us had expected at the start of the year,” said Kieran McQuinn, research professor with the Economic and Social Research Institute.

“This is mainly down to the lower than expected increases in inflation which are now prevalent.”

While a more resilient Irish economy has helped ease consumer concerns, the February Credit Union consumer sentiment survey predicts a significant pullback in spending plans this year.

The survey estimates the true inflation hit to the average Irish household last year was around €3,500.

Meanwhile, the ECB reported zero profit for 2022 as it used €1.6bn from a buffer fund to avoid reporting a loss.

The ECB had to write down just over €1.8bn due to unrealised losses on bonds held in its own funds and US dollar portfolios, as yields – the premium that investors charge to buy debt, particularly from riskier countries or companies – rose. Yields have climbed as the ECB raised rates and pulled back on emergency bond buying.

The next ECB rate meeting is on March 16.