Euro zone inflation posts record drop but core prices accelerate

FRANKFURT (Reuters) – Inflation in the euro zone dropped by the most on record in March but growth in core prices accelerated, Eurostat data showed on Friday, likely strengthening the case for more interest rate hikes by the European Central Bank.

Consumer prices rose by 6.9% in March after an 8.5% increase in February, implying the biggest deceleration since Eurostat started collecting data in 1991.

The fall was almost exclusively due to a drop in energy prices compared to March last year, when they had surged in the wake of Russias invasion of Ukraine.

But an index that excludes energy and food prices, known by economists as core inflation and seen as a better gauge of the underlying trend, accelerated slightly to 7.5% from 7.4% in February.

Analysts polled by Reuters had expected headline inflation in the 20 countries that share the euro to come in at 7.1% and core inflation at 7.5%.

After a record streak of rate rises, the ECB has refrained from committing to more hikes, saying this will depend on whether the current turmoil in the banking sector subsides and on data including underlying inflation.

But several ECB policymakers including chief economist Philip Lane have said recently that more increases in borrowing costs are likely to be needed to bring inflation back to the central banks 2% target.

(Reporting By Francesco Canepa; Editing by Catherine Evans)