Eurozone inflation was slightly higher than anticipated in February but it was the increase in core inflation (excluding food and energy) that caught the eye. Now, one may conclude that food and energy, although volatile, are very much ‘core’ but leaving that argument aside, if the price of everything else is still rising (at a present rate of approximately 5½%), perhaps the self-inflicted inflation problem is a tad more entrenched than many thought previously.
Then, Federal Reserve Chairman, Jerome Powell, cautioned that interest rates were likely to head higher than policymakers had expected. He confirmed that inflation had reversed the deceleration it showed in late 2022 while core inflation was similar to the Eurozone. Wall Street fell on the news that rates would, in essence, not only go higher but also for longer. By the lamentable standards of current central bank governors, Mr Powell is by far the best. The U.S. moved first to correct the overly lax monetary policies that generated out of control inflation in the first place and even had the good grace last year to admit “I think we now understand better how little we understand inflation”. Bailey, Lagarde et al, it’s over to you.
