Eurozone inflation hit a record high in December

High energy prices forced the eurozone’s annual inflation rates to their highest level last month, the Eurostat agency said on Friday.

Officials and economists expect the rate to fall over the next year, but the record level will add to pressure on the ECB to reconsider its historically low-interest-rate policy.

The December 5 per cent figure is the first estimate but confirms a trend that has pushed the rate to a quarter-century high, the peak since records began in January 1997.

These figures are well above the European Central Bank’s target of 2.0 percent inflation in the eurozone, but the ECB believes inflation should fall in 2023, after peaking in 2022.

The rebound in prices in recent months is mainly due to the exceptional increase in gas and electricity prices.

In December, the annual increase in energy prices reached 26 per cent, well ahead of the other products surveyed in the Eurostat basket.

However, the prices of food, alcohol and tobacco rose 3.2 per cent, ahead of industrial products by 2.9 per cent and services by 2.4 per cent.

Among the large countries, the largest increases were recorded in Spain with 6.7 per cent and Germany with 5.7 per cent.

Rate hike ‘unlikely’
German consumers and lawmakers have a historic fear of inflation and rising prices have generated pessimistic headlines in the media as Chancellor Olaf Scholz’s new coalition government finds its feet.

By contrast, price increases remained more moderate in Italy and France, according to harmonized European data calculated by Eurostat.

Inflation was particularly high in the Baltic states, with the highest level for the euro area recorded by Estonia at 12 per cent and Lithuania at 10.7 per cent.

Before Christmas, the ECB had raised its inflation forecasts, citing both energy prices and supply chain difficulties in the industry, partly caused by the coronavirus epidemic.

Consumer demand is also particularly strong as the single currency area emerges from lockdown measures.

The ECB now expects prices to rise 3.2 per cent in 2022, up from a previous forecast of 1.7 per cent.

He only expects prices to fall below his two per cent medium-term target in 2023, and the horizon has grown increasingly distant in recent months.

The president of the institution, Christine Lagarde, has considered it “very unlikely” that its key interest rates, currently at their lowest point in history, will rise in 2022.

“After hitting 5.0 percent in December, headline inflation in the euro area should fall this year as the energy component plummets,” said Jack-Allen Reynolds, senior economist for Europe at Capital Economics.

“Another historic figure, but decreasing inflation rates are expected from here as energy inflation moderates,” said Bert Colijn from ING bank.

“Still, core inflation is projected to remain above two per cent in the first half of 2022 as high production costs are set on the consumer.” (TheGuardian)