Price pressures across the single currency area remain strong, according to Christine Lagarde © Getty Images / picture alliance / Contributor

Growth in the euro area has nearly stalled in early 2023 in the aftermath of higher energy costs and supply bottlenecks, the ECB has reported.

“The latest available data suggest that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked,” ECB President Christine Lagarde told European lawmakers in Brussels on Monday.

Domestic demand, especially consumption, and business and consumer confidence, across the 20-member currency bloc remain weak, according to Lagarde. The manufacturing sector is still working through a backlog of orders, but its outlook is worsening, she warned. The services sector remained resilient, mainly due to the reopening of the economy following the pandemic.

Inflation in the Eurozone eased to 6.1% in May, down somewhat from 7.0% in April. Food price inflation remains elevated but is decreasing, and stood at 12.5% in May, down from 13.5% in April, she said. Inflation excluding energy and food declined to 5.3% in May from 5.6% in April.

Eurozone business confidence plummets – data Eurozone business confidence plummets – data

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Eurozone business confidence plummets – data

“Upside pressures on both headline and core inflation are still coming from the pass-through of past energy cost increases and supply bottlenecks, which are nonetheless expected to fade gradually,” the ECB head noted.

According to Lagarde, wage pressures have strengthened further as employees seek to recoup some of the purchasing power they have lost as a result of high inflation.

Rising food prices continue to weigh on low-income households in particular, Lagarde said, adding that the ECB is “fully committed to fighting inflation” to achieve its 2% target. She indicated that at its next policy meeting the ECB would raise its three key interest rates by 25 basis points in response to the inflationary pressures.

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