Inflation rises again to 8.3 percent and threatens further rate hikes

Inflation in Ireland has risen sharply again, standing at 8.3 per cent in May, the highest level since the 1980s. Eurostate’s new inflation figure shows cost of living growth here is below the EU average, but significantly higher than in France and Malta, where cost of living growth was 5.8% per percent in May.

Cost growth is hitting Eastern Europe hardest, with staggering rates being recorded in Estonia (20.1%), Lithuania (18.5%) and Latvia (16.8%). Rising inflation has already prompted the European Central Bank (ECB) to forecast a 0.25 percentage point rate hike in July and September, but the latest hikes will prompt calls for steeper hikes in some quarters.

On Friday, Dutch central bank governor Klaas Knot said multiple rate hikes of half a point may be needed if inflation worsens.

Knot, an ECB hawk who became the first Governing Council member to postpone the idea of ​​a rate hike beyond the usual quarter-point, said that even with a bigger incremental hike, he doesn’t expect rates to rise a total of 200 basis points before early 2023.

“Then we have to see if that’s enough to bring inflation back to 2 percent in the medium to long term,” the governor of the Dutch central bank said in a radio interview on Friday. “If that’s not enough, we have to raise interest rates further. But you can’t quantify that in percentage terms. I cannot rule out an interest percentage.”
With consumer price growth at a record level, now exceeding 8%, the ECB plans to raise its deposit rate – currently -0.5% – by a quarter point next month and by a larger amount at the next September meeting. In addition, a “sustained” cycle of increases is outlined without specifying their size.

However, rising interest rates will increase bills for households across Europe and, more importantly, for policymakers, and threaten to soar the cost of borrowing for the eurozone’s most indebted governments, particularly Italy, with potentially destabilizing effects could.

As borrowing costs for Italy rose this week, the ECB held an emergency meeting on Wednesday where policymakers agreed to speed up work on an anti-crisis tool that would allow the bank to intervene in markets to support countries threatened by a debt crisis.