ECB warns of more pain to come in inflation fight after rate hike 

Some Irish experts have warned about the consequences for households and businesses of further rate increases

European Central Bank president Christine Lagarde said 'inflation is stlll being pushed up by the gradual pass-through of past energy-cost increases and supply bottlenecks'.

European Central Bank head Christine Lagarde has effectively warned households, businesses, and investors to expect more financial pain after unveiling a further rate hike on Thursday and indicating it still has more work to do to win its fight against inflation. 

The quarter-point rise was smaller than the hefty half-point than some economists had feared, but Ms Lagarde made clear the ECB was not for "pausing" and that further action was on the way until it assessed that price pressures had been tamed.            

The ECB rate hike came less than a day after its US counterpart, the Federal Reserve, although also hiking by a quarter point, left open the possibility that the US could soon enjoy a pause from further increases. And some Irish experts have warned about the consequences of further ECB rate hikes.                        

Speaking at a press conference, Ms Lagarde cited inflation staying "too high for too long", adding that underlying price pressures, despite easing in recent times, remained strong, and noting that food price inflation was running at around 13% across the eurozone.  

"Inflation is stlll being pushed up by the gradual pass through of past energy-cost increases and supply bottlenecks," Ms Lagarde said.

"In services, especially, it is still being pushed higher also by pent-up demand from the reopening of the economy and by rising wages," she said. 

The eurozone economy was resilient, with the services sector strengthening, but manufacturing was facing worsening prospects, Ms Lagarde said. 

Economist Austin Hughes said it was 'very clear' the hawkish wing of the ECB was winning out and warned it could go too far in its fight against inflation. Picture: Iain White Photography

However, economist Austin Hughes said it was "very clear" the hawkish wing of the ECB was winning out and that, unlike the Federal Reserve, the ECB was "still looking out the rear window" and could go too far in its fight against inflation. 

Mr Hughes, who has long been a leading critic of aggressive ECB rate hikes, said the ECB was now in danger of damaging the eurozone economy. "For that reason it will remain a bumpy second half for the eurozone, and a nervous one for Irish households," he said, adding that he hoped the ECB would at least stop after two more rate hikes in the next two months.  

Neil McDonnell, chief executive at business group Isme, said though he understood the imperative to fight inflation, rate increases themselves would contribute to inflation by pushing up house-building costs, and that landlords would be looking to increase rents. 

We understand the macroeconomic reasons, but it is not helpful for businesses or consumers.

Michael Dowling, a leading mortgage broker, said the pain for Irish households was increasing further. On the back of Thursday's rate hike alone, tracker mortgage holders on a €250,000 loan will soon face an increase of €35 a month, equivalent to €420 over a full year. 

Since the ECB started raising rates last summer, the tracker household is now paying €480 more in mortgage payments a month, equivalent to €5,760 more over a year, Mr Dowling said. Fixed-rate mortgage holders will face hefty increases when they roll off their current low-cost rates, he warned.