THE halting the downward trend of inflation in the Eurozone in February and the fastest price increase of its core consolidate the feeling in the money markets that the European Central Bank will continue to raise interest rates in the coming months and will keep them at high levels for a considerable period of time.

According to preliminary data announced by Eurostat on Thursday, the general consumer price index rose 8.5% in February on an annual basis against an increase of 8.6% in January, while in Greece it slowed to 6.5% against 7.3%, respectively. The change in the Eurozone is marginal and may not even be there when the final figures come out in mid-March (in January, preliminary figures showed the headline index rising 8.5%, only to be revised to 8.6%).

What is also troubling is that the structural inflation, which excludes volatile energy and fresh food prices, rose to a record 7.4% from 7.1% in January. Contributing to this development were the prices of processed food, alcohol and tobacco, which rose 15.5% compared to 15% in January, as well as the prices of non-energy industrial goods and services, which rose 6.8% and 4.8% from 6.7% and 4.4% in January.

Accordingly, another measure of structural inflation – which excludes the prices of energy, food (fresh and processed), alcohol and tobacco – rose to 5.6% from 5.3%.

THE ECB meets next Thursday, March 16, when it is expected to raise its key interest rates by half a percentage point, as announced at its last meeting in early February. The deposit rate, which has already increased by 3 percentage points since last July, will therefore reach 3%.

After March, interest rate hikes will continueas was also announced at the last meeting of the ECB and confirmed by its head, Christine Lagarde, in statements made in the previous days.

The step of the next increases, whether they will be half a percentage point or lower, as well as their total extent, will depend on the data on inflation in the coming months and on the forecasts of the central bank for its course in the medium term. The ECB’s chief economist, Philip Lane, pointed out that a condition for ending rate hikes is that current inflation falls and forecasts show it falling below 2% in 2025. He noted that when interest rates reach their highest level, will remain at this for several quarters, before beginning to decline.

Inflation data in February, which was indeed elevated in major countries – such as Germany, France and Spain – has led to an upward revision of investors’ expectations of where final interest rates will arrive, with money markets they assume that the deposit rate will rise to 4%, i.e. it will increase in total by one more percentage point after March.

The debate in the ECB’s governing board on its next moves is expected to be intense. One camp, that of the so-called “hawks”, wants more interest rate hikes, particularly making the argument of high structural inflation. The other camp, the “doves”, wants more restraint in interest rate increases, emphasizing the risks that there will be for the economy from an overly strict policy.

Representatives of the second camp are more optimistic about the course of inflation. Philip Lane recently noted that there are strong indications, based on leading indicators, that inflation is expected to ease significantly not just in energy, where it has decelerated in recent months (February’s year-on-year increase was 13.7% from 18.9 % in January), but also in food and in general in products.

Lane cited lower oil and natural gas prices, improved supply chains after and the opening of the Chinese economy, government fiscal support measures and ECB interest rate hikes as factors that will lead to deflationary inflation.