Eurozone inflation falls sharply but core rate reaches new record high of 5.7%

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Core inflation across the eurozone reached a new all-time of 5.7% in March, according to preliminary figures, offering a stark reminder of how entrenched the phenomenon of rising prices has become.

Core inflation excludes the volatile prices of energy, food, alcohol and tobacco, and gives a more accurate diagnosis of the current state of the economy.

The indicator is closely watched by the European Central Bank to decide new increases in interest rates, which are meant to curb consumer demand and cool down prices.

Core inflation has never been this high since the introduction of the euro.

Looking at the broader picture, annual inflation across the eurozone stood at 6.9% by the end of March, a steep decrease from the 8.5% rate registered in February, according to the flash estimate released by Eurostat on Friday morning.

“Inflation sharply down in the eurozone. Good news!” said Paolo Gentiloni, the European Commissioner for the economy. “But core inflation remains high, driven by food and services.”

For the first time in months, energy, one of the main drivers behind soaring prices, experienced a deflationary move, falling from 13.7% to –0.9% in March.

Gas prices have been on a steady downward trend since the turn of the year, offering a much-welcome respite to households and companies.

Food and alcohol inflation, however, saw a moderate uptick, from 15% to 15.4% in March.

One year ago, that same indicator was hovering around the 5% threshold.

Out of the 20 countries that use the single currency, six remain in the double-digit territory: Latvia (17.3%), Estonia (15.6%), Lithuania (15.2%), Slovakia (14.8%), Croatia (10.5%) and Slovenia (10.4%).

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Luxembourg currently enjoys the lowest inflation in the eurozone, at 3%, whereas Spain’s rate almost halved, falling from 6% to 3.1% in March.

Germany, Europe’s largest economy, also saw a decrease, from 9.3% to 7.8% on annual basis. France’s inflation rate was 6.6% while Italy’s stood at 8.2% in March.

The numbers are still miles away from the 2% annual target pursued by the European Central Bank, whose main mission is to maintain price stability.

The aggressive interest hikes introduced by the Frankfurt-based bank have raised fears of economic distress for debt-ridden companies, institutions and governments.

But despite the latest turmoil in the financial markets, ECB President Christine Lagarde has pushed back against this notion, insisting taming down inflation was paramount.

“There’s no trade-off between price stability and financial stability,” Lagarde told MEPs earlier this month.

“We’re not compromising on one because of the other. We address them with different sets of tools.”