Eurozone inflation sets new records and puts more pressure on the ECB


Eurozone consumer prices rose at a record pace from January to December as food prices soared, and the European Central Bank tried to convince households and businesses that inflation would return to its target at the end of this year. As we are working hard, we have presented new challenges. No increase in borrowing costs.

European Union statistics said Friday, December consumer prices were 5% higher than the previous year, up from the previous year. November 4.9% record..

Economists surveyed by The Wall Street Journal expected inflation to ease to 4.7%. However, while energy prices rose at a slow pace in the 12 months to December, food inflation surged from 1.9% in November to 4.6%.

The rise in inflation near the end of 2021 was a surprise to many economists who expected it to peak in November. As in the United States, ECB claims that consumer prices in the euro area are rising faster than policymakers expected in recent months, and high inflation is likely to be temporary. Is questioning investors, businesses and homes about their credibility.

The Federal Reserve Board has shown that inflation may rise in response to rising inflation. Three major interest rates this yearHowever, the ECB in December reiterated the view that an increase in borrowing costs in 2022 would not be necessary. A slight rise in inflation in December is unlikely to change that stance, but longer periods of high inflation are more likely to raise inflation next year.

“I think it’s more likely that banks will start laying the groundwork for monetary tightening policies in 2023 later this year,” said Jack Allen Reynolds, an economist at Capital Economics.

Excluding highly volatile items such as energy and food, core inflation remained flat at 2.6%. However, as consumer demand eased in the face of a new surge in Covid-19 infections, service inflation slowed, but manufacturing prices rose at a faster pace. It was inherited by the family.

The ECB in December said inflation is likely to be longer than expected and exceed the 2% target, raising its forecast for average price increases this year from 1.7% in September to 3.2%.

However, ECB Governor Christine Lagarde predicts that inflation is likely to ease throughout the year, with central bank economists averaging 1.8% in 2023.

“It is very unlikely that we will raise interest rates in 2022,” she told reporters after she said a bond purchase program had begun to counter the economic impact of the pandemic. Ends in March..

The ECB’s big concern is a series of self-reinforcing, as households and businesses get used to prices that rise faster than target interest rates. Higher wage transactions Employers raise prices to cover increased costs.

The higher the inflation rate and the longer the time above the target, the greater the risk of wage and price spikes in the euro area. But despite another surprise in December, economists are confident that inflation will begin to fall in January.

In 2012, there was a magnitude 3.6 earthquake in the Netherlands. This was triggered by one of the world’s largest gas fields known as Groningen and triggered a series of events contributing to today’s ultra-high energy prices. WSJ’s Shelby Holiday explains.Illustration: Sebastian Vega

One reason is Germany’s efforts to support the German economy during the early months of the pandemic. In July 2020, the government, the largest member of the euro area, reduced the VAT rate for six months. In other words, consumer prices since July 2021 have exaggerated inflationary pressures compared to the artificially low prices of the previous year. This is no longer the case as tax rates returned to pre-pandemic levels in early 2021.

However, the outlook for the future is less clear, proving that supply chain blockages and uncertainties about Russia’s supply of natural gas last longer than economists and policy makers expected.

There are some signs that log jams that are blocking the world’s supply chains are starting to loosen, and the prices companies pay for raw materials and other inputs are not rising very rapidly. According to a December survey of purchasing managers at factories around the world, input prices have risen at the slowest pace since March 2021.

James Pomeroy, HSBC Economist, said:

Write in Paul Hannon

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Eurozone inflation sets new records and puts more pressure on the ECB

Source link Eurozone inflation sets new records and puts more pressure on the ECB

The post Eurozone inflation sets new records and puts more pressure on the ECB appeared first on Eminetra.


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