Record Eurozone inflation of 4.9% puts pressure on the ECB

Inflation in the euro area rose to 4.9% in November. This is the highest ever since a single currency was created over 20 years ago, and policymakers and economists have warned that price pressures could last longer than expected.

Driven by soaring energy prices, the rise in inflation in the Eurozone, as measured by the CPI index, was above the average 4.5% expected by economists surveyed by Reuters. This rise could put further pressure on the European Central Bank. Reduce that financial stimulus..

Some investors said the ECB seems too relaxed about rising prices. “It may be the wishful thinking of the ECB Governor. [Christine] When Lagarde declared that price pressure would never go out of control, it’s hard to follow the argument that it’s already out of control and will soon ease, “said Charles Hepworth, investment director at GAM Investments. Said.

Deutsche Bundesbank Governor Jens Weidmann warned the ECB on Tuesday, “We are wary of putting pressure on us to maintain a much looser course longer than the price outlook shows.”

A 6% rise in German consumer prices is the fastest rise in almost 30 years, causing political instability.Germany’s next Minister of Finance Christian Lindner wrote on Twitter “Inflation raises legitimate concerns,” he added. “In the case of devaluation, observe how it evolves after a pandemic.”

The ECB sought to ease fears of rising prices by saying that many temporary causes of inflation, such as rising energy prices, supply chain bottlenecks and a reversal of the German consumption tax cut, will diminish next year.

While the surge in coronavirus cases and the spread of new variants have increased economic uncertainty, there are signs that ECB officials are wondering if inflation will fall as fast as expected.

“The bottleneck could last longer than expected in 2022,” ECB Deputy Governor Luis de Guindos said in an interview with Les Echos on Tuesday. “There is a risk that inflation will be as fast and not as low as we expected.”

The 27.4% year-on-year rise in energy prices in November was the largest driver of inflation in the block’s 19 countries. However, prices for food, services and commodities all rose faster than the ECB’s 2% target.

Core inflation, where the ECB is monitoring the underlying pressure to get rid of more volatile energy, food, alcohol and tobacco prices, rose from 2% last month to 2.6%. Part of the rise in service prices was due to lower weights on package travel in official inflation baskets, reflecting a decline in tourists during the pandemic.

Luigi Speranza, Chief Global Economist at BNP Paribas, said:

Economists struggle to assess their impact on inflation Record surge in coronavirus cases Spread with Omicron variant In Europe.

Jack Allen Reynolds, senior European economist at Capital Economics, said the variant is likely to lower overall inflation due to lower oil prices, but should be added to the pandemic-induced supply chain log jam. Said that it could push up commodity prices. He predicted that eurozone inflation would only fall below the ECB’s 2% target in late 2022.

The ECB announced a new inflation forecast on December 16th, which is widely expected. To increase them From the one published in September, which predicted a drop from 2.2% this year to 1.7% next year and 1.5% in 2023.

Record Eurozone inflation of 4.9% puts pressure on the ECB

Source link Record Eurozone inflation of 4.9% puts pressure on the ECB

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