To exactly nobody’s surprise other than the economists whose forecasts again proved misguided, inflation in Europe was stubborn in February.

At 8.5%, the provisional read on the headline gauge was barely softer than January’s final reading, and ahead of the 8.3% consensus.

That’s problematic enough on its own, but the real issue now is core inflation, which hit another record, rising 5.6% from the same period a year ago.

Whatever progress looks like, that isn’t it. The data came on the heels of hot readings from Spain and France, and a reported pick up in price pressures in Germany.

Although there were caveats, there’s no sense in which the numbers were good news for the ECB, which is now virtually guaranteed to keep hiking past the 50bps move the Governing Council committed to deliver at the March meeting.

Food, alcohol and tobacco prices rose 15% YoY this month in Europe. The 12-month rate was up nearly a full percentage point from January’s pace. Unprocessed food prices rose 3.4% MoM. Disconcertingly, services inflation neared 5%, and rose 0.9% from January to February.

Once again, the worry is that inflation, having stuck around for this long, is now embedded. “With wage growth on the rise, concerns are that services inflation could prove sticky at high levels,” ING said Thursday, adding that “energy inflation did not drop in line with market price developments, thanks in part to French changes in the tariff shield.”

At this point, energy is almost a secondary concern, although describing it that way risks being naive about the very real possibility of another paroxysm brought on by some adverse geopolitical development. I assume base effects will matter a lot for the YoY headline inflation prints going forward (as we lap the comps associated with the Ukraine invasion), but if inflation is now entrenched such that it’s playing a role in consumption decisions and wage-setting, the ECB has a tough fight ahead of it.

“At this point, it’s possible we continue,” Christine Lagarde said Thursday, referencing rate hikes after March during an interview on Spanish television. “By [how much] in each meeting is impossible to say.”

The messaging from Lagarde and the GC, even the hawkish members, seems very much behind the market, which earlier this week began looking into 2024 for the end of the hiking cycle.

Terminal is now priced around 4%. And Lagarde is on TV saying it’s “possible” the ECB will have to keep hiking past March? During the same interview, she declined to comment on the likely peak for the depo rate. “Honestly, it will be determined by the data,” she said.

Well, “honestly,” core inflation, even if you write off base effects and assume a generous seasonal adjustment factor, probably ran at a 0.5% MoM rate in February (the actual print was a wholly unacceptable 0.8%), which means an annualized 6%, triple the ECB’s target. So, Lagarde has a big problem.

I’d caution that because the ECB is attempting the impossible, where that means coordinating a unified monetary policy for a loose and often fractious confederation of nations all running disparate fiscal policies, the GC may discover that the transmission channel between rate hikes and country-level inflation is very inefficient and unpredictable, to the extent it functions at all.

Further, what is the ECB supposed to do in the event the war drags on, inflation becomes embedded across the bloc, and elected officials in some nations insist on pursuing fiscal policies conducive to persistently resilient demand? It’s entirely possible that draconian rate hikes will prove very effective — punitive even — in some locales, and wholly ineffective in others.

Skeptics have been predicting the dissolution of the euro for as long as I can remember. Could inflation be the catalyst for the end of the shared currency?