Euro Zone Inflation Up 3%, The Highest In A Decade

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Euro zone inflation increased 3% in August from the same month last year and is bound to reach its highest reading in 10 years. The European Central Bank (ECB) will meet on September 9 to discuss its asset purchase program.

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Euro Zone Inflation

The increase also thrashed ECB’s expectation of 2%, after a 2.2% jump YoY in June, and according to Eurostat, it was driven by the 15.4% increase in the energy sector.

On Monday, Germany reported a consumer price increase of 3.4% in August, the highest since 2008, while France also hit an inflation peak never seen in the last three years.

Salomon Fiedler, economist at Berenberg, was quoted as saying in CNBC: “Euro zone households have accumulated substantial excess savings during lockdowns. Should they decide to spend a larger than expected portion on consumption soon, price pressures could rise further in the near term.”

Jack Allen-Reynolds, economist at the consulting firm Capital Economics, also asserts that inflation in the Eurozone could increase “even more in the coming months.”

“This is due to temporary pressures that should disappear next year, leaving headline and core inflation well below 2% by the end of 2022.”

Oxford Economics consultancy pointed out that this increase is “largely transitory,” while the ECB has not expressed concern about rising prices. It has indeed signaled that it will continue its long-lasting stimulus policies to help fuel the post-pandemic economic recovery.”

Stimuli Program

ECB’s director Christine Lagarde said the bank would show “patience” to help the countries of the Eurozone overcome the sanitary crisis.

The institution has not yet made any adjustments to its emergency bond purchase program, a plan supported by a budget of $2.2 trillion and seeking to dampen the impact of the coronavirus pandemic.

However, CNBC reports, the bank’s September 9 meeting “is expected to discuss the future of its asset purchase program as its governing council seems divided about when to start relaxing stimulus measures.”

Fiedler said, however, that Euro zone inflation “has now surged well above the 2.6% peak rate which the ECB had projected for the fourth quarter 2021.”

With a further likely rise in Euro zone inflation until November, the ECB will almost certainly have to raise its inflation projections at its meeting on 9 September, he added.

The Euro zone is the space shared by the 19 countries of the European Union that adopted the euro as their currency, and whose monetary policy is conducted by the ECB.