Inflation in 19 euro-sharing European countries hit a 13-year high, challenging the European Central Bank’s (ECB) view that price pressures are generally benign and will soon weaken.
According to data on October 1, the rate of increase in consumer prices in the euro area accelerated to 3.4% in September, rising from 3% in the previous month to 2.2% in the previous month ()pdf) From Eurostat, the statistical agency of the European Union. This is the highest since September 2008 and is slightly ahead. Analyst’s prediction 3.3%.
Soaring energy costs are behind most of the inflationary pressure, with energy prices rising 17.4% annually and 1.3% monthly in September.
Factors behind rising energy costs in Europe include recovery from demand from the slump in the pandemic recession, OPEC production caps, and global transportation bottlenecks. Insufficient production from European wind turbines and solar farms, low natural gas stockpiles, and maintenance work to take nuclear generators and other plans offline also contributed.
Energy cost inflation rose 2.6% in the 12 months to September, staying flat for a month, but surpassing the next highest category, raw foods.
Supply chain problems emerged in the data, with production and shipping bottlenecks contributing to higher consumer durables prices, rising 2.1% annually in September and 2.3% monthly.
ECB policymakers, like the Fed’s respondents, see inflation as temporary and will decline once supply chain turmoil subsides. Both expect price pressures to ease next year and approach their respective goals. This is essentially the same long-term average of 2%, which corresponds to a modest overshoot to compensate for below-target inflation over the years.
Still, ECB Governor Christine Lagarde pointed out an increase in inflation risk this week, despite a more cautious tone, demanding patience and warning that the stimulus would be pulled back too quickly.
Some economists believe that central bank policymakers may underestimate inflation risk.
Carsten Brzeski, Global Head of Macro in ING Germany, said: Friday memo..
However, while economists generally expect intense debate at the ECB’s next policy meeting on the optimal pace of asset purchases, the debate on interest rate hikes seems far away.
“Headline inflation has skyrocketed, and the European Central Bank’s December debate over whether a pure readjustment of asset purchases is sufficient or a more important rewind is better is heating up. “I will,” writes Brzeski.