Inflation in the euro area soars to 4.9% – its highest since the introduction of the euro | Eurozone | Top stories

Inflation in the euro area soars to 4.9% – its highest since the introduction of the euro | Eurozone

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Inflation in the 19 eurozone members soared to 4.9% this month, beating City’s forecast and putting pressure on the European Central Bank to revise its ultra-interest rate policy. low.

With some investors reacting to the news by accusing the ECB of letting inflation run out of control, European statistical agency Eurostat said its first flash inflation reading in November reached the highest level since the relevant records began. in 1997, two years before the euro was launched.

High gas prices and the cost of imported goods have been blamed for the inflationary surge. Energy prices, including oil and gas, jumped 27% from November 2020, Eurostat said, to increase the overall rate by 4.1% in October.

France suffered a 3.4% rise in inflation, its highest level in a decade, but it was in Germany, among the bloc’s largest economies, that prices soared, pushing the rate inflation at 6%. In Estonia, the inflation rate jumped 8.4%, while in Lithuania it reached 9.3%.

Other developed economies have also been rocked by similar inflationary pressures since the summer. The United States recorded an inflation rate of 6.2% in October, the biggest 12-month jump since 1990, while annual prices rose over the same period by 4.2% on average in October. UK.

Charles Hepworth, chief investment officer at GAM Investments, said the eurozone’s surge above the 4.5% average predicted by City economists “continues to underscore the incredibly incongruous argument from central bankers that this cost inflation is transitory ”.

So far, like most central bank governors, the ECB’s Christine Lagarde has insisted that inflationary pressures will prove temporary and likely start to ease in 2022.

Hepworth said that position would be strained, despite the emergence of the Omicron variant of Covid-19 and its potential to negatively affect recovery from the pandemic.

“It may be wishful thinking on Lagarde’s part when she says the price pressures won’t get out of hand – they already are and it’s hard to follow the argument that it will abate soon,” he said. he declared.

The euro area’s core inflation rate, which excludes potentially volatile items such as alcohol, energy, food and tobacco, also rose in November at an annual rate of 2.6% against 2%.

Some analysts have said that the strength of the rise in base prices above the ECB’s 2% target shows that the headline inflation rate is already having side effects via higher wage demands.

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However, ECB officials should take a more cautious view, refraining from announcing big policy changes while tests are carried out on Omicron’s effects.

If the variant started to affect growth levels, prices such as oil would likely drop, lowering inflation rates around the world.

Jack Allen-Reynolds, Senior Economist for Europe at Capital Economics, said: “The Omicron variant has further increased the level of uncertainty, but for now we believe it will have a fairly small impact on the inflation. “

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