The state of the eurozone economy continues to send mixed signals.

According to preliminary data published on 31 March, annual inflation across the eurozone fell from 8.5% in February to 6.9% in March, which is one of the sharpest drops in recent years. However, at the same time, core inflation reached an all-time high of 5.7%, a stark reminder of how entrenched and complex the phenomenon of rising prices has become.

Core inflation excludes volatile energy, food, alcohol and tobacco prices, and provides a more accurate overview of the current state of the economy. This indicator is closely monitored by the European Central Bank to decide on further interest rate hikes aimed at curbing consumer demand and cooling prices.

Following the latest figures, the Bank is almost certain to raise rates again: core inflation has never been higher since the introduction of the euro.

“Inflation in the eurozone has fallen rapidly. Good news!” said European Commissioner for Economy Paolo Gentiloni (Paolo Gentiloni), reacting to the flash estimate published by Eurostat. “But core inflation remains high, driven by food and services inflation.”

For the first time in months, energy, which had been one of the main drivers of price growth, experienced deflation, falling sharply from 13.7% in February to -0.9% in March. Gas prices in Europe have been steadily declining since the turn of the year, providing a much-needed respite for households and businesses. However, inflation for food and alcohol products rose again – from 15% in February to 15.4% in March, which is the highest rate among all major categories. A year ago, this same figure hovered around the 5% mark.

Of the 20 countries using the single currency, six still have double-digit figures: Latvia (17.3%), Estonia (15.6%), Lithuania (15.2%), Slovakia (14.8%), Croatia (10.5%) and Slovenia (10.4%).

Luxembourg currently has the lowest inflation in the eurozone at 3%, while inflation in Spain fell by almost half, dropping from 6% in February to 3.1% in March.

Germany, Europe's largest economy, also saw a decline – from 9.3% to 7.8% year-on-year. In France, the inflation rate was 6.6%, while in Italy it was 8.2% in March.

These figures remain far from the 2% annual target sought by the European Central Bank, whose primary mandate is to maintain price stability.

The aggressive interest rate hikes introduced by the Frankfurt-based institution have raised concerns about economic difficulties for indebted companies, banks and governments. However, despite the latest turmoil in the financial markets, ECB President Christine Lagarde (Christine Lagarde) refuted this view, insisting that curbing inflation is paramount. “There is no trade-off between price stability and financial stability,” Lagarde told MEPs earlier this month. “We are not compromising one for the other. We are addressing them with different tools.”

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