LONDON , — Official figures Friday showed that consumer prices in the 19 EU countries that use euro currency have risen to their highest levels in more than 13 years due to soaring energy costs and a surge of demand during the pandemic recovery.
Eurostat, the European Union’s statistics agency, reported that inflation rose by 4.1% over the past year to October. This is an increase from September’s 3.4%. This was also the largest increase since July 2008 when inflation was 4.1%.
As the world recovers from the coronavirus epidemic, inflation has been rising in these 19 countries and elsewhere around the globe. This recovery has not been typical. Businesses and consumers around the world have felt the pinch of supply chain backlogs and labor shortages, which has led to higher prices for everything, from food to toys going into the holiday shopping season.
The most significant impact on prices of global demand picking up and lockdown restrictions easing is high energy costs which have risen utility bills and threatened economic recovery.
With inflation at twice its target of 2%, the latest rise in consumer prices will likely push the European Central Bank towards accelerating its efforts to end its pandemic stimulus programs. Although central banks tend to raise interest rates and reduce stimulus efforts to combat rising costs, they may hold off on doing so if it is temporary.
Thursday’s statement by the European Central Bank stated that a lot of the price rise is due to comparisons with prices before the pandemic, recent higher fuel prices and increased demand as the economy reopens. Officials at the bank said that they expect all three to be temporary and they therefore kept their pandemic support (including a 1.85 trillion euro bond purchase program) in place until March.
Jack Allen-Reynolds (Capital Economics senior Europe economist) stated that “we agree with the ECB” that inflation should slow down next year. “But, given uncertainty about how long supply issues will persist, the risks seem skewed toward a longer-lasting overshoot at 2%.
Eurostat’s Friday figures showed that the price rise is beginning to trickle down through the eurozone economy. The core rate, which excludes volatile items like alcohol, food, and tobacco, was 2.1% in October, compared to 1.9% the month before.
Eurostat also reported that growth in euro-using countries rose by 2.2% in quarter three of the year. This is a slight increase from the 2.1% in quarter one. The quarterly updates from the countries that published figures have not been consistent. France posted strong growth of 3% and Germany, Europe’s largest economy, only performed with 1.8%.
Although Eurostat didn’t provide any details about the composition of growth in eurozone economies, it is clear that the lifting of lockdown restrictions has helped to strengthen the services sector such as bars and restaurants.
There are fears that growth will slow as economies return to normal output levels. Inflation is also a concern. This could lead to a drop in household spending and a decrease in industrial activity. Worldwide supply chain problems and shortages of certain products could also impact activity.
“The eurozone’s economy bounced back in the third quarter,” stated Tej Parikh, director at Fitch Ratings. However, headwinds to growth are building,” he said.
