European central bank expects longer period of high inflation before falling this year

By Ovunc Kutlu

ANKARA (AA) - The European Central Bank (ECB) expects inflation to likely remain high for longer than previously anticipated but to start declining later this year, President Christine Lagarde said Thursday.

"Inflation has risen sharply in recent months and it has further surprised to the upside in January. This is primarily driven by higher energy costs that are pushing up prices across many sectors, as well as higher food prices," she said at a news conference after the ECB kept interest rates unchanged despite record inflation.

Annual euro area inflation hit a new high of 5.1% in January, according to a flash estimate of preliminary data from Eurostat on Wednesday. Energy is projected to have the highest annual rate last month with 28.6%, up from 25.9% a month ago.

"High energy costs are hurting incomes and are likely to dampen spending. However, the economy is affected less and less by each wave of the pandemic and the factors restraining production and consumption should gradually ease, allowing the economy to pick up again strongly in the course of the year," Lagarde said.

Asked about when the ECB would raise interest rates, Lagarde said the central bank will closely watch incoming macroeconomic data, such as wages and the labor market, and will make a more in-depth analysis at its March meeting.

Amid record inflation, expectations are for at least two rate hikes from the ECB this year.