European Central Bank policymakers were surprised by high inflation of 5% in December

Inflation in the euro area reached a record high of 5% in December 2021, further questioning the European Central Bank’s (ECB) monetary policy capacity, which claimed inflation was temporary.

Inflation rose unexpectedly last month, making things even more unpleasant for ECB authorities, who have consistently underestimated price pressures and intense criticism from some policy makers.

Inflation has risen from 4.9% in November to 5% in 19 eurozone countries, well above analysts’ expectations of 4.7%.

The main cause of inflation was rising energy prices, up 26% year-on-year.

According to Eurostat data, rising prices for food, services and imports were also well above the ECB’s overall inflation target of 2%.

Its last internal forecast December Optimistically, we will set future inflation to 1.8% in both 2023 and 2024.

The central bank said it did not yet need to raise interest rates in 2022, unlike the Federal Reserve Board, which had a more hawkish financial stance at the time.

“Monetary easing is still needed for inflation to stabilize at the 2% inflation target in the medium term,” the ECB said before a recent report.

The ECB in December curbed monthly asset purchases, but vowed to continue to boost exciting spending in 2022.

If inflation continues to accelerate, banking authorities may be forced to change their tone the next time the ECB’s board meets on February 3.

However, no policy action from the ECB is expected until March.

“If inflation rises further and upward surprises continue, central banks could be forced to put a hard brake,” said an analyst at Berenberg Bank in Germany.

According to Berenberg, the ECB was ready for its first hike in the spring of 2023.

Banks now expect inflation to exceed the bank’s target in 2022, which is 3.2%.

European banking experts believed that the rise in inflation a few months ago would ease by the end of the year as the economy recovered strongly from the 2020 pandemic shock.

Supply chain bottlenecks and subsequent inflation have reduced consumer spending on retail products and increased spending on food and other necessities.

Experts have noticed that inflation excluding food and fuel prices in the euro area has risen from 2.6% to 2.7%, while excluding alcohol and tobacco products is stable at 2.6%. rice field.

Some analysts have already stated that the euro area may have reached its peak of inflation.

However, there is disagreement over how rapidly inflation will fall and where it will bottom out when the economy stabilizes.

Optimistic European policymakers believe that inflation surges are temporary and price pressures should eventually ease.

However, some influential policymakers have questioned standard explanations, warning that risk is biased towards higher numbers and inflation above target may continue into 2023. I am.

Wage growth in Europe is weak, but the surge in Omicron can weigh on economic activity and inflation.

European stocks fell on Friday, with the STOXX Europe 600 index at 486.25, down -1.91 points to 0.39%.

Brian Jung


Brian S. Jung is from New York City and is a resident with a background in the political and legal industry. He graduated from Binghamton University.