Eurozone surge hits record highs due to soaring energy costs


Inflation in the euro area hit a record high for the year to January, bringing upward surprises to predictors who predicted a significant easing of price pressures, according to European Union statistics.

In 16 European countries that share the euro currency, prices rose 5.1% in the 12 months to January, according to Eurostat.pdf). This is the highest number in the history of the data series, well above 4.4 percent. Predicted by economist.

ING analysts said, “Due to the reduction in the basic effect of oil prices and the German value-added tax (VAT), the price increase from January last year is out of the numbers, and most people expect a significant drop in headline inflation. Was. ” Said in a note..

However, the effects of these lower inflations were well offset by the surge in energy costs. Energy costs rose 28.6% annually and were the number one major driver of inflation.

Prices for alcohol, food and tobacco rose 3.6% in January from 3.2% in December, service price inflation remained at 2.4%, and non-energy industrial products were 2.9% last month. It fell to 2.3% in January.

So-called core inflation, which has removed the unstable categories of food and energy and is considered by economists to be a better barometer of underlying inflationary pressure, fell from 2.6% in December to 2.3% in January. .. The decline in core inflation, while the number of headlines has risen sharply, obscures the assessment of future inflation paths in the euro area.

“This will bring tomorrow’s European Central Bank (ECB) meeting an inflation rate that will provide enough ammunition for both hawks and pigeons. How structural or temporary this current inflation rate is. It’s far from resolving the debate about whether or not, “the ING analyst wrote.

Energy prices are expected to fall steadily and lower headline inflation in the future, but analysts predict that higher producer prices will be passed on to consumers, pushing up commodity inflation measures.

ING analysts expect inflation in the euro area to ease to around the ECB’s target of around 2% by the end of the year.

Inflation is ahead of the ECB’s board meeting, with an announcement on expected interest rates on Thursday. The ECB has shrugged data for months showing rising prices, arguing that temporary factors are behind the rise and that inflation will soon naturally ease.

Unlike the Fed, which suggested a rate hike in March, the ECB argues that it is very unlikely that a rate hike will occur by the end of the year.

Inflation is skyrocketing around the world, and economists are blaming factors such as pandemic supply chains and labor disruptions. Historically unprecedented levels of fiscal and monetary stimulus, along with the savings accumulated during the pandemic, pushed up demand and pushed up prices in the face of supply constraints.

Tom Ojimek

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Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communication, and adult education. The best writing advice he has ever heard is from Roy Peter Clarke.