The European Central Bank has raised interest rates to 3.5% and plans to increase them further in July due to ongoing inflation concerns. The bank's decision includes raising the benchmark deposit rate to its highest level in 22 years while revising inflation projections upwards and slightly lowering growth forecasts for the next three years.
Eurozone employee pay rose by 5.2% in Q1 compared to last year, up from 4.8% in Q4, according to recent ECB data. The ECB has revised core inflation forecasts to 5.1% for this year, 3% for next year, and 2.3% for 2025, partly due to a strong labor market.
Why it matters
The central bank raised rates despite the US Federal Reserve pausing rate increases. Eurozone inflation is now higher at 6.1% compared to the US. The ECB is concerned that sustained high inflation could lead to a cycle of rising wages and costs, keeping price pressures elevated.