ECB Speakers Spar On Rate Hikes As Inflation Hits New High

• European Central Bank policymakers sparred over the size of their upcoming rate increases on Tuesday as data showed euro zone inflation rising to another record high in May. Prices have risen sharply across Europe in the past year, with the ECB initially blaming lingering supply chain problems following the COVID-19 pandemic, then the Ukraine war which has caused the cost of energy and some foods to surge. 
• Inflation in the 19 countries sharing the euro accelerated to 8.1% this month from 7.4% in April, while price pressures continued to broaden, indicating that it is not just energy pushing up the headline figure. 
• The ECB has pencilled in gradual interest rate increases in July and September but, after Tuesday's data, markets and at least one ECB rate-setter doubt that hikes worth 25 basis points each will be enough to tame fast price growth. 
• The ECB's deposit rate, currently used as its benchmark, is set at minus 50 basis points, meaning banks are charged to park their money safely at the central bank. Negative interest rates are the legacy of a decade of ultra-low inflation, which has been swept away in the space of a few months. 
• But while headline inflation is four times the ECB's 2% target, policymakers may be more worried by the rapid rise in underlying prices, which indicates that what was once seen as a transitory jump is now becoming embedded. Inflation excluding food and energy prices, watched closely by the ECB, accelerated to 4.4% year-on-year from 3.9% while an even narrower measure that also excludes alcohol and tobacco accelerated to 3.8% year-on-year from 3.5% in April.

(Source: Reuters)