19 nations share the euro as their currency
(Picture: AP)Soaring inflation is showing no sign of easing off in the eurozone, reaching another record high as rocketing gas and electricity prices continue to drive the cost-of-living crisis, adding to pressure on policymakers for a hawkish rate hike next week
The consumer price index reached 9.1% in August, higher than the 9% expected by forecasters and up from the last record of 8.9% in July for the 19 countries sharing the currency. Rising food prices added to the increases, which remained driven by higher gas prices after Vladimir Putin’s invasion of Ukraine upended the region’s energy markets and sent economic shockwaves around the world.
The increasing cost of food is another sign that energy price rises are feeding through the economy, raising the prospect of double-digit inflation in the bloc for the first time in the shared currency’s history. Prices for finished goods also rose, catching the eye of City experts.
Some eurozone members are already struggling with national-level inflation in the double-digits. Holland’s is at 10.3% and Spain is at 10.4%. The French rate is at 5.8% and Germany’s is 7.9%. Italy’s is at 8.4%. For the wider 27-nation European Union, it’s 9.8%.
Bert Colijn, senior economist at ING, said the main concern in the eurozone data was the increase in goods inflation, which deepens “worries about second-round effects from the input cost shock lasting longer.”
The next interest rate decision from the European Central Bank is due next Thursday, September 8. The new record for the eurozone will pile pressure on policymakers to take action, while the range in national inflation rates illustrates how the ECB’s governing council has a more complex set of considerations than other major central banks.
“As the economy is slowing rapidly – and perhaps already contracting at this point – the question is how much the ECB needs to slam the brakes. Another hike of at least 0.50% in September seems to be a done deal, with the hawks pushing for 0.75%,” added Colijn.
“The big question is how the ECB will respond after this, if indeed signs of economic distress become more apparent, and inflation remains highly driven by supply-side factors.”
Outside the bloc, UK inflation is at 10.1% and in the US it is at 8.5%, having started to ease back from 9.1% with the Federal Reserve adopting jumbo % rate rises of 0.75%.
