• Consumer prices rose 9.3% from year ago in February; est. 9%
  • ECB set for half-point March hike with focus on months ahead

German inflation surprisingly accelerated in February, further complicating the European Central Bank’s task after overshoots this week in other parts of the continent. 

Consumer prices advanced 9.3% from a year ago, up from January’s 9.2% gain, driven by services and food costs. The move came even as Germany moved to limit household heating bills that rocketed because of Russia’s war in Ukraine.

Analysts in a Bloomberg survey had expected a slowdown to 9%.

The reading for Europe’s biggest economy puts more pressure on the ECB after French inflation hit a euro-era record and Spanish price growth defied estimates to moderate. That prompted markets for the first time to price a 4% peak in the ECB’s deposit rate, which currently stands at 2.5%.

Officials are preparing to raise borrowing costs by another half-point in March, with many backing big moves beyond that until inflation heads sustainably back toward the 2% target.

Numbers from the 20-nation euro zone are due on Thursday. Economists predict a slowdown to 8.3% from 8.6%, though the underlying gauge that excludes volatile energy and food costs  — the main focus for ECB policymakers of late — is seen remaining at a record 5.3%.

What Bloomberg Economics Says…

“For the ECB, a sequence of upside surprises to readings for the euro area’s biggest economies is awkward. That the bulk of the misses are accounted for by food and energy is cold comfort.”

—Martin Ademmer, economist. Click here for full REACT

Addressing reporters in Frankfurt earlier Wednesday, Bundesbank President Joachim Nagel warned that core price pressures remain very elevated and that the inflation rate is only likely to retreat gradually — averaging between 6% and 7% in Germany this year.

“One thing is clear: the interest-rate step announced for March will not be the last,” he said in a speech. “Further significant interest-rate steps might even be necessary afterwards, too.”

While Nagel declined to speculate on the end of the monetary-tightening cycle, his French counterpart, Francois Villeroy de Galhau, said in Paris that it’s “desirable” for the ECB to reach a peak by September.

Bank of Italy chief Ignazio Visco said there’s “no question the tightening of the euro-area monetary stance must continue” to ensure inflation doesn’t become more persistent.

Written by:  @Bloomberg.com