Eurozone Inflation Softens to 8.5% But Is Higher Than Expectations

The rate of inflation in the eurozone slightly decreased in February after the head of the European Central Bank stated that it would take some time to bring the inflation rate down. Based on initial data released on Thursday, the headline inflation in the 20-member bloc for February was at 8.5%. This is lower than the revised headline inflation rate of 8.6% in January, where prices appeared to have cooled off for the third month in a row.

There has been speculation among market participants on whether the European Central Bank (ECB) will need to maintain its hawkish stance for a longer period of time, especially after higher-than-anticipated inflation data from France, Germany, and Spain for the month of February. ECB President, Christine Lagarde, was quoted by Reuters on Thursday, stating that lowering the inflation rate will require more time. The ECB's goal is to achieve a headline inflation rate of 2%.

Goldman Sachs analysts have announced this week that they have increased their expectations for a rate hike by the European Central Bank (ECB), and have factored in an additional 50 basis points hike in May. As a result, European bond yields have been rising to multi-year highs in recent days, as there are increasing indications that the hawkish monetary policy will persist.