The Governing Council of the European Central Bank meets in Frankfurt today where it is widely expected to increase interest rates for the seventh time since it began raising rates last summer.
The ECB’s base deposit rate is currently 3%.
Market analysts are divided over whether the bank will increase rates today by another half or a quarter of one percent.
Inflation has been coming down across the euro area in recent months, including Ireland. However, it remains high for certain categories of goods and services.
Food inflation has replaced energy as the main source of inflation. And while food inflation has been slowing since February, it is still rising at an annual rate of approximately 14% on average across the euro area.
Energy prices have been falling but in certain countries, such as Ireland, households have yet to feel the benefit of any reduction in their utility bills.
So-called ‘core’ inflation, which strips out both energy and food, declined marginally in April but was still running at 5.6% on an annual basis.
Last week, initial estimates of growth figures for the euro area were weaker than expected, while this week banks reported the biggest decline in demand for loans from businesses and households.
These are two factors which might suggest the medicine of higher interest rates is working to dampen economic activity and bring down inflation.