Eurozone inflation update

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Eurozone inflation has risen to its highest level in nearly a decade, increasing the pressure on the European Central Bank to slow down its bond purchases.

Driven by the recent economic rebound in the region, the unified consumer price index in the Eurozone rose from 2.2% in July to 3% in August. The increase exceeded most economists’ expectations.

Since the European Central Bank just raised interest rates in the region in November 2011 (the last time it did so), consumer prices in 19 countries have not risen that fast.

Prices in each euro zone country increased or remained flat in August compared to the same period last year. Estonia, Lithuania and Belgium have the highest inflation rates, between 4.5% and 5%. Only four Eurozone countries have inflation rates below 2%, which is lower than the 16 countries in March.

The price increase is caused by Economic rebound Affected by the epidemic, energy prices have risen, Germany’s VAT cut last year and supply chain reversal bottleneckThey also partly reflect the delayed start of summer clothing sales in France and Italy last year. This year’s sales are on time, so prices are relatively high.

The German “Bild” on Tuesday condemned the “new inflation shock” in its front page headline after the country’s inflation rate was hit. A 13-year high.

In the past year, energy prices rose 15.4%, tobacco and alcohol prices rose 2%, and industrial product prices rose 2.7%. Excluding volatile energy, food, alcohol and tobacco prices, core inflation more than doubled to 1.6%, the highest level since 2012.

Most economists expect that inflation will fall again next year as temporary factors recede.But the recent price increase still provides ammunition for the more conservative European Central Bank interest rate setters: they are Expected to promote At the meeting next week, under its 185 million euro pandemic emergency purchase plan, its bond purchases have slowed down.

Capital Economics macro economist Jack Allen Reynolds said: “The impact of reopening and supply issues may intensify in the coming months.” “But we suspect that as global consumption and trade patterns return to pre-pandemic levels. , And manufacturers-especially semiconductor manufacturers-can increase production, they will start to fade next year.”

Allen-Reynolds predicts that the overall inflation rate in the Eurozone will drop to around 2% in January and continue to drop to around 1% at the end of next year.

Investors seem to be relatively optimistic about rising inflation, which is usually considered bad news for bond prices. The yield on German 10-year government bonds rose 2 basis points to minus 0.42% on Tuesday. Bond yields rise as prices fall.

As the world economy rebounds from the effects of the pandemic, inflation rates in many countries are rising, which has increased the pressure on central banks to begin to reduce monetary stimulus measures introduced in the year.In the United States, where the inflation rate exceeds 5%, Federal Reserve Chairman Jay Powell Said last week This year it will begin to reduce the scale of asset purchases.

Rising inflation faster than expected will also provide an early test for the European Central Bank’s policies. New strategy, It was announced in July. The central bank slightly raised its inflation target to 2% and stated that although it is prepared to tolerate any mild and temporary overshoot, it promised to maintain a “strong and durable” policy to combat it.

Berenberg economist Salomon Fiedler (Salomon Fiedler) predicts that the European Central Bank will raise its inflation and growth forecasts next Thursday. He said: “This may be the basis for reducing the rate of bond purchases in the fourth quarter under the pandemic emergency purchase plan, and may reach a rate between the first quarter and the faster rate adopted by the European Central Bank thereafter.”