ALBAWABA – President Christine Lagarde of the European Central Bank, the financial authority of the European Union (EU), said on Monday that there are "signs of moderation" in core EU inflation, which has not peaked yet.
Her remarks will likely reinforce market expectations for further interest rate increases this month and the next, despite the sharp decline in inflation last month, according to Bloomberg.
Following Lagarde’s remarks, expectations on the CME FedWatch index dropped, from 80.5 to 77.1 percent, as reported by Bloomberg.
The index gauges expectations as to whether or not the Federal Reserve will hold current interest rates in the upcoming June meeting next week.
The European Central Bank is also slated to convene on June 15, right after the Federal Reserve’s meeting on June 15.
Bloomberg predicted that interest rates in the EU will likely reach an unprecedented total of four percentage points in less than 12 months.
"The latest available data shows that indicators of core inflationary pressures remain elevated, and although some appear to be moderating, there is no clear evidence that core inflation has peaked yet," Lagarde told European lawmakers.
Inflation in the 20 euro countries eased to 6.1 percent in May, from 7.0 percent in April, Bloomberg reported, and core inflation reached 5.3 percent, down from 5.6 percent in April.
Notably, core inflations excludes volatile food and fuel prices from inflation measurements.
The effects of past interest rate hikes are "beginning to materialize," Lagarde confirmed, and said that the old rates "will likely be reinforced in the coming years".
In the meantime, interest rates would have to be raised again "to sufficiently restrictive levels" to bring inflation down to the bank's 2 percent target, she said.
