Eurozone inflation hits record 10% as energy prices continue to soar

Eurozone inflation hit a new high for the 11th straight month as energy prices continued to rise, bolstering calls for the European Central Bank to continue aggressive rate hikes. interest when it meets next month.

Eurozone consumer prices rose 10% in the year to September, from 9.1% in August, which was already the highest level in the 23-year history of the euro. Price increases also exceeded the 9.7% expected by economists polled by Reuters.

The squeeze on gas supplies from Russia to Europe after its invasion of Ukraine has driven up energy prices and forced governments to intervene by spending hundreds of billions of euros to protect consumers and businesses. spinoff companies. Energy prices rose 40.8% in September, from 38.6% the previous month, according to a flash estimate from Eurostat, the statistical arm of the European Commission.

EU energy ministers were due to discuss one-off levies on non-gas electricity producers and fossil fuel companies on Friday and a reduction in maximum electricity consumption by 5%, as well as a potential cap on wholesale gas prices. Economists expect the 19-nation bloc to fall into recession this winter as households cut spending and industry groups cut output.

Carsten Brzeski, an economist at Dutch bank ING, said further fiscal support measures “would soften the recession in the eurozone and lower the inflation peak, but would also mean that the fall in inflation next year will be less accentuated because you will have a stronger demand”. .

Line chart of the Harmonized Index of Consumer Prices (annual percent change) showing eurozone inflation figure for September sets another record high

Eurozone food, alcohol and tobacco prices rose 11.8% from 10.6% in August. Core inflation, which excludes more volatile energy and food prices to give economists a clearer picture of underlying price pressures, rose to 4.8% from 4.3% in August.

More than half of the 19 eurozone countries had double-digit inflation levels and in three Baltic countries it was above 20%. However, inflation slowed in France from 6.6% to 6.2% – the lowest in the bloc thanks to large subsidies on energy bills. Dutch Finance Minister Sigrid Kaag said it was “terrible” that inflation in the country had reached 17.1%.

The headline eurozone figure was boosted by German inflation, which hit a new 71-year high of 10.9% in September after government measures to cushion the impact of the energy crisis expired. including a discount on fuel taxes and a €9 subsidy. monthly train ticket.

However, Germany on Thursday became the latest EU country to announce new measures to cut energy costs for consumers and businesses. Berlin aims to spend 200 billion euros to cap gas and electricity prices.

Deutsche Bank economists estimated the Berlin plan would cut German inflation next year by 3 percentage points from the bank’s previous forecast of 9% and mitigate the fall in output from 2023 to minus 2%, compared to its previous forecast of minus 3.5%.

The ECB, which is targeting 2% inflation, said inflation was ‘far too high’ and signaled it intended to keep raising rates until price growth slowed significantly . The central bank raised its deposit rate by 1.25 percentage points in its last two policy meetings and markets expect another hike of 0.75 percentage points on October 27.

Nouriel Roubini, professor of economics at New York University, predicted in a tweet that the euro zone was heading for a “stagflationary hard landing” caused by persistently high inflation and stagnant growth. He warned that the ECB would have to raise rates “earlier and earlier, causing serious economic, financial and political tensions”.

Separate figures from Eurostat showed on Friday that the total number of unemployed people in the euro zone fell by 30,000 to just under 11 million in August, the smallest monthly drop so far this year, while the unemployment rate remained stable at 6.6%.

Jessica Hinds, an economist at Capital Economics, said: “We expect the tight labor market to keep upward pressure on wage deals,” which she said would keep services prices up and would push headline eurozone inflation even higher in the coming months.


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