Wednesday, October 20, 2021

Rising energy costs push Eurozone inflation to highest level in 13 years

Inflation rose to a 13-year high in the 19 European countries that share the euro, challenging the European Central Bank’s (ECB) view that price pressures are largely benign and will soon fade.

Consumer price inflation in the eurozone rose to 3.4 per cent in September, up from 3 per cent a month earlier and 2.2 per cent a month earlier, according to data (PDF) from EU statistics agency Eurostat. This is the highest reading since September 2008 and is slightly ahead of the analyst’s forecast of 3.3 percent.

The increase in energy costs was on the back of inflationary pressures, with energy prices rising 17.4 percent during the year and 1.3 percent in the month to September.

Factors behind the uptick in energy costs in Europe include improving demand from the pandemic slowdown, OPEC production caps and lower levels of global transport constraints. Low output from Europe’s windmills and solar farms, low natural gas reserves, and maintenance work have also contributed to nuclear generators and other plans to go offline.

Energy cost inflation eclipsed the next highest category – unprocessed food – which rose 2.6 percent in the 12 months through September, although it remained stable throughout the month.

The supply chain crisis appeared in the data, with production and shipping bottlenecks pushing prices of durable goods up 2.1 percent during the year and 2.3 percent in the month to September.

Policymakers in the ECB, like their counterparts in the Federal Reserve, have taken the view that inflation is temporary and will subside once supply chain disruptions end. Both expect price pressure to ease over the next year and move closer to their respective targets—essentially the same 2 percent long-run average that adjusts for a moderate overshoot to compensate for years of target inflation. Is.

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Nevertheless, ECB president Christine Lagarde took a more cautious tone this week, pointing to increased inflation risks, even as she called for patience and warned against withdrawing stimulus too early .

Some economists believe that central bank policymakers may be underestimating the risk of inflation.

“In our view, some of the one-off factor should really go away next year, but inflation may be more sticky than in the ‘transient’ camp,” Karsten Brzewski, macro global head at ING Germany, said in a note. Friday.

But while economists generally expect heated debate around the optimal pace of asset purchases at the ECB’s next policy meeting, discussions about interest rate hikes appear distant.

“With yet another surge in headline inflation, the heat continues for the European Central Bank’s December discussion of whether a net recalculation of asset purchases is sufficient or whether a more significant rewinding would be preferable,” Brzewski wrote.

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Tom Ozimek has an extensive background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s heard from Roy Peter Clark: ‘Hit your goal’ and ‘Leave the best for last.’

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This News Originally From – The Epoch Times

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