Consumer prices in the euro area rose by 10.7 percent in October, the highest since the introduction of the euro in 1999.
(Photo: dpa)
Dusseldorf, Frankfurt Many economists expect inflation in the US and Europe to fall, but not to return to pre-pandemic low levels. The Harvard economist Kenneth Rogoff is particularly concerned about the decoupling from China. “Heightened political tensions, together with deglobalization, are likely to reduce productivity and increase long-term inflation around the world,” he warns.
The head of Munich’s Ifo Institute, Clemens Fuest, expects inflation to peak in Germany over the course of the winter. From his point of view, how things will continue beyond 2023 depends heavily on the policy of the European Central Bank (ECB). A certain inflationary pressure will remain. “Skills shortages, decarbonization spending, foreign trade frictions, all of these are driving inflation.”
In addition, there are some fears that the central banks could loosen their monetary policy earlier than is necessary. The chief economist at the US fund company MFS, Erik Weisman, points out that the US Federal Reserve has made this mistake more often in the past. “That was the case in the 1970s under then-Fed Chairman Arthur Burns. And initially also during the tenure of Paul Volcker.”
Because of his determined fight against inflation, Volcker is seen as a role model by many central bankers today. At the beginning of his tenure as Fed chairman in August 1979, however, he had temporarily lowered interest rates. He earned his reputation for raising interest rates again and keeping monetary policy tight during the 1981-82 recession.
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In October, the inflation rate in the euro area rose to a record 10.7 percent. The main reason for the price surge is the sharp rise in energy prices, which shot up by 41.9 percent compared to the previous year. In the US, consumer prices rose 8.2 percent in September. The previous peak there was reached in June with 9.1 percent.
Tense US job market
In America, energy prices rose 19.8 percent year-on-year. On the other hand, the situation on the labor market is much more tense. The unemployment rate was 3.7 percent in October. There are currently two job advertisements for every applicant – in Europe there are 0.3 advertisements per applicant.
In the USA, the Federal Reserve started raising interest rates earlier. Last week it increased the key interest rate again by 0.75 percentage points to between 3.75 and four percent. Fed Chairman Jerome Powell also announced further steps. At the end of October, the ECB also raised the key interest rate by another 0.75 percentage points. Economists also expect further steps in the euro area.
More: Inflation in the euro area rises to record levels – economists expect further increases