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Eurozone inflation hits 13-year high !!

The Eurozone has reached a 13-year high.

Eurozone inflation surged to 3.4 percent year-on-year (y-o-y) in September, reaching a 13-year high, according to Eurostat, the European Union’s statistical office. According to the Xinhua news agency, energy prices remained the main driver of inflation in the 19-member eurozone, rising 17.4% year on year.

In August, the yearly inflation rate had already shattered a ten-year high.

Although temporary factors such as high energy prices, the German VAT reversal, and a general hike in prices following the reopening of economies continue to drive inflation rates in the eurozone, there are signs that this high inflation rate may be more persistent than originally expected, according to Carsten Brzeski, global head of macro research at ING.

Impact(National/Global):-

“We find two kinds of second-round effects materialising,” Brzeski says.

The first is that, rather than cutting their margins as they have in the past, companies will pass on greater manufacturing costs to customers. Second, wages will be channeled through the system. Higher wages could emerge from a scarcity of trained workers and still-high unemployment rates, as well as a re-regionalization of manufacturing as a result of supply chain frictions.

The European Central Bank (ECB) has downplayed post-lockdown inflation increases in recent months and is now taking them more seriously.

The pace of growth in the 19 nations that share the euro increased to 3% in August, up from 2.2 percent in July, greatly exceeding expectations.

Markets mainly ignored the report as equities rose and yields increased. Nonetheless, the figures are sure to make the ECB uneasy.

Because inflation in Germany, the euro zone’s largest economy and the ECB’s biggest critic, is likely to hit 5% in the next few months, the ECB is expected to raise interest rates. The bank is likely to face public pressure to handle price developments that are resurrecting long-dormant memories of runaway prices. 

Future implications or controls

However, Chiara Zangarelli, fixed income analyst at Nomura, said the Japanese bank reckons inflation will drop back to just over 1% by the end of 2022 as energy prices cool. For that reason, the ECB may in fact increase asset purchases in December, she said. ING economist Bert Colijn said. “So hold tight: inflation has the potential to go higher from here.”

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