Eurozone inflation hit a new high for the 11th straight month as energy prices continued to rise, underpinning calls for the European Central Bank to continue its aggressive rate hikes at next month’s meeting.
Consumer prices in the euro zone rose 10 percent through September, accelerating from 9.1 percent in August, already the highest level in the euro’s 23-year history. Price increases also beat the 9.7 percent expected by economists polled by Reuters.
Russia’s curbing of gas supplies to Europe following its invasion of Ukraine has pushed up energy prices and forced governments to step in, spending hundreds of billions of euros to protect consumers and businesses from the fallout. Energy prices rose 40.8 percent in September from 38.6 percent in the previous month, according to a flash estimate by Eurostat, the European Commission’s statistical service.
EU energy ministers agreed on Friday measures including a mandatory 5 percent reduction in peak electricity consumption, a windfall levy on fossil fuel companies and a €180/MWh cap on the price of electricity from non-gas power generators. Economists expect the euro zone to slip into recession this winter as households cut spending and industrial groups cut output.
Carsten Brzeski, an economist at Dutch bank ING, said new fiscal stimulus measures would “soften the eurozone recession and lower the peak of inflation, but also mean that next year’s fall in inflation will be less pronounced because you have stronger demand.” will have”. .
Food, alcohol and tobacco prices in the euro zone rose 11.8 percent from 10.6 percent in August. Core inflation, which excludes more volatile energy and food prices to give economists a clearer idea of underlying price pressures, rose 4.8 percent from 4.3 percent in August.
More than half of the 19 euro area countries recorded double-digit inflation rates and three Baltic countries exceeded 20 percent. However, inflation in France slowed to 6.2 percent from 6.6 percent – the lowest on the bloc thanks to big subsidies on energy bills. Dutch Finance Minister Sigrid Kaag said it was “terrible” that inflation in the country had reached 17.1 percent.
The euro-zone total was boosted by German inflation, which hit a new 71-year high of 10.9 percent in September after government measures to cushion the impact of the energy crisis were phased out.
On Thursday, Germany became the youngest EU country to announce further measures to reduce energy costs for consumers and companies. Berlin wants to spend 200 billion euros on capping gas and electricity prices. Deutsche Bank economists estimated that Berlin’s plan would cut German inflation by 3 percentage points next year, compared with the bank’s previous forecast of 9 percent, and moderate the fall in output to minus 2 percent in 2023, compared with their previous forecast of minus 3.5 percent.
The ECB, which is targeting 2 percent inflation, said inflation was “far too high” and indicated it intends to keep raising rates until price growth slows noticeably. The central bank hiked its deposit rate by 1.25 percentage points at its last two policy meetings and markets are pricing in another 0.75 percentage point hike on October 27th.
Nouriel Roubini, an economics professor at New York University, predicted in a tweet that the eurozone is headed for a “stagflationary hard landing” caused by persistently high inflation and sluggish growth. He warned that the ECB would have to raise rates “quicker and sooner, which would result in serious economic, financial and political strains.”
Separate figures from Eurostat on Friday showed that the euro-zone’s total number of unemployed fell by 30,000 to just under 11 million in August, the smallest monthly decline so far this year, while the unemployment rate remained unchanged at 6.6 percent.
Isabel Schnabel, a member of the ECB’s Executive Board, said in a speech on Friday that while many euro-zone workers are suffering real wage cuts as their wages lag behind inflation, rising energy prices and supply shortages could lead companies to raise prices even further lift a downturn.
“Underlying inflation could remain elevated despite weakening demand,” Schnabel said. “Uncertainty about the persistence of inflation therefore continues to call for a ‘robust control’ approach to monetary policy” to reduce the risk that consumers and businesses expect inflation to stay high for longer, she said, adding that means doing so “further hikes in our policy rates are needed.”
Jessica Hinds, economist at Capital Economics, said: “We expect the tight labor market to keep upward pressure on wage deals” which she forecast will continue to push up service prices and push inflation in the eurozone as a whole even further would soar.
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