Euro zone inflation drops as energy costs ease but interest rate hikes still on the cards

Fall almost exclusively due to a drop in energy prices

However, core inflation, which excludes energy and food costs to give a better view of underlying price pressures, hit a new euro zone high of 5.7 per cent in March, up from 5.6 per cent the previous month. Food price inflation also rose, from 15 per cent to 15.4 per cent. Services inflation was up from 4.8 per cent to 5 per cent.

European stock markets, which had been flat on Friday, rose on the euro zone inflation data. The region-wide Stoxx 600 and Germany’s Dax indices both climbed 0.4 per cent while France’s Cac 40 was up 0.5 per cent. The euro weakened 0.2 per cent against the dollar to $1.088.Listen |Euro area government bond prices initially rallied before falling back, leaving yields on Germany’s two-year debt up 0.05 percentage points at 2.

Rate-setters’ worries about surging labour costs – which overtook those in the US after rising by 5.7 per cent in the fourth quarter – will be accentuated by jobs data released on Friday showing unemployment in the bloc was at a record low of 6.6 per cent in February.

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