Inflation in Ireland has surged again and was running at 8.3pc in May, the highest level since the 1980s. The new inflation figure from Eurostate shows the rise in the cost of living here is running below the EU average but significantly higher than France and Malta where the rise in the cosy of living was 5.8%pc in May.
he surge in costs is hitting eastern Europe hardest with eye watering rates recorded in Estonia (20.1pc), Lithuania (18.5pc) and Latvia (16.8pc). The surge in inflation has already prompted the European Central Bank (ECB) to pencil in interest rate raise of .25 percentage points in July and September but the latest rises will trigger calls in some quarters for steeper increases.
On Friday the Dutch central bank chief Klaas Knot said several half-point increases in interest rates could be needed if inflation worsens.
Knot, an ECB hawk who was the first Governing Council member to float the idea of a hike above the usual quarter-point, said that even by moving in larger increments he doesn’t expect rates to be raised by a cumulative 200 basis points before early 2023.
“Subsequently, we have to see if that’s enough to bring back inflation to 2pc in the medium-to-long term,” the Netherlands’ central bank chief said Friday in a radio interview. “If that isn’t enough, we’ll have to increase the rate further. But it’s impossible to put a percentage on that. I can’t rule out any interest-rate percentage.”
Facing record consumer-price growth that now tops 8%, the ECB plans to lift its deposit rate — currently -0.5% — by a quarter-point next month and by a bigger amount at the following meeting in September. Beyond that, it’s outlined a “sustained” cycle of increases, without specifying their size.
However, raising interest rates will add to bills for households across Europe and more significantly for policy makers threatens to drive up borrowing costs for the most heavily indebted Euro area governments, in particular Italy, with potentially destabilising effects.
As borrowing costs spiked for Italy this week the ECB held an emergency meeting on Wednesday where policy makers agreed to speed up work on an anti-crisis tool that would allow the bank to intervene on the markets to support countries in danger of a debt crisis.