Money is handed over a fruit and vegetable counter at a weekly market.
(Photo: dpa)
Frankfurt The inflation rate in the euro area continued to rise in October. Consumer prices increased by 10.7 percent compared to the same month last year. This was announced by the European statistical office Eurostat on Monday. Inflation was 9.9 percent in September. This is the highest level since the euro was introduced in 1999. Experts polled by Reuters had only expected a value of 10.2 percent
The European Central Bank (ECB) is actually aiming for a value of two percent for the currency area. Inflation has continued to move away from this mark since mid-2021. This intensifies the pressure on the central bank to raise interest rates further.
Last week, the central bank raised the key interest rate by a further 0.75 percentage points to two percent. The interest rate on deposits, which is currently relevant for the financial markets, rose to 1.25 percent. ECB President Christine Lagarde also announced further rate hikes. However, some of your statements were interpreted on the markets in such a way that they could be lower in the future than they were last time. The new figures are now increasing the pressure for further tightening of monetary policy.
Commerzbank chief economist Jörg Krämer now assumes that the inflation rate will be well over ten percent in the fourth quarter. From his point of view, this speaks for a continuation of the last course taken. “The euro zone needs another big interest rate hike of 0.75 percentage points in December,” he demands.
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Krämer assumes that inflation will “probably only peak in December” and that values of eleven percent will then be possible. Commerzbank forecasts that the inflation rate will gradually fall next year as energy prices stabilize. However, the price pressure will probably remain high in the coming year. Many companies have not yet fully passed on their higher production costs to consumers. In addition, the bank sees “signs of an increase in wage growth.”
The chief economist at Berenberg Bank, Holger Schmieding, is somewhat more optimistic. “We expect a further slight increase in the year-on-year rate in the coming months, since the very high energy costs have still not fully reached households and companies. From March 2023 at the latest, however, the inflation rate should go downhill rapidly.” From then on, the sharp increase in food and energy costs after Putin’s attack on Ukraine will no longer be consistent with the previous year’s comparison.
Energy prices are currently by far the strongest price drivers. They shot up 41.9 percent year-on-year in October. In September, the increase was still 40.7 percent. Food, alcohol and tobacco prices increased by 13.1 percent. Core inflation, which strips out volatile energy and food prices, rose to 5 percent from 4.8 percent.
The further development of inflation is likely to be a decisive factor for how much further the ECB increases interest rates. However, interest rate increases usually only affect inflation with a time lag. Several ECB officials have stressed that their main concern is to prevent inflation expectations from getting out of hand.
More: Inflation rate in Germany rises to 10.4 percent – highest level since 1951