Current News Today

- Advertisement -

- Advertisement -

Eurozone Inflation Hits a Record, Further Pressuring ECB

Consumer prices in the eurozone increased at a record pace in the year through December as food prices jumped, presenting a fresh challenge for the European Central Bank as it strives to persuade households and businesses that inflation will return to its target toward the end of this year without a rise in borrowing costs.

The European Union’s statistics agency Friday said consumer prices in December were 5% higher than a year earlier, a pickup from the previous record of 4.9% in November.

Economists surveyed by The Wall Street Journal had expected the inflation rate to ease to 4.7%. But while energy prices rose at a slower pace in the 12 months through December, food-price inflation jumped to 4.6% from 1.9% in November.

The pickup in the inflation rate as 2021 drew to a close was a surprise for many economists, who had expected a peak in November. As in the U.S., eurozone consumer prices have risen faster than policy makers had anticipated over recent months, raising questions for investors, businesses and households about the credibility of the ECB’s assertions that high inflation is likely to be temporary.

The Federal Reserve has responded to the pickup in inflation by signaling that it is likely to raise its key interest rate three times this year, but the ECB in December repeated its view that a rise in borrowing costs during 2022 wouldn’t be necessary. While the small rise in the inflation rate during December is unlikely to change its stance, a longer period of high inflation makes a rate rise next year more likely.

“We think there is a growing chance that later this year the bank will begin to prepare the ground for tighter monetary policy in 2023,” said Jack Allen-Reynolds, an economist at Capital Economics.

The core inflation rate, which excludes highly volatile items such as energy and food, was unchanged at 2.6%. But while services inflation slowed as consumer demand eased in the face of a fresh surge in Covid-19 infections, prices of manufactured goods rose at a faster pace, a sign that some of the higher costs caused by the logjams clogging global supply chains are being passed on to households.

The ECB in December said inflation would likely be above its 2% target for longer than it had expected, raising its forecast for average price rises this year to 3.2% from the 1.7% it projected in September.

But ECB President

Christine Lagarde

said the inflation rate was likely to ease over the course of the year, and the central bank’s economists forecast it would average 1.8% in 2023.

“It is very unlikely that we will raise interest rates in the year 2022,” she told reporters after saying the bond-buying program launched to counter the economic effects of the pandemic would end in March.

The ECB’s big worry is that households and businesses will grow accustomed to prices rising more quickly than its target rate, opening the way for a self-reinforcing series of higher pay deals and price rises by employers to cover their increased costs.

The higher the inflation rate goes, and the longer it stays above the target, the greater the risk that the eurozone will see wages and prices spiral. But despite another surprise in December, economists remain confident that the inflation rate will start to fall in January.

In 2012, the Netherlands experienced a 3.6 magnitude earthquake. It was caused by one of the world’s largest gas fields, known as Groningen, and it set off a chain of events that’s contributing to today’s sky-high energy prices….

Read More:Eurozone Inflation Hits a Record, Further Pressuring ECB

Get real time updates directly on you device, subscribe now.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Get more stuff like this
in your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Thank you for subscribing.

Something went wrong.