Euro zone: inflation reached 5% in December, its highest level in twenty-five years

The inflation rate in the euro zone reached, in December, its highest level in twenty-five years, at 5% over one year, still propelled by soaring energy prices, according to a first estimate published on Friday January 7 by Eurostat.

Never has the statistical office of the European Union recorded such a figure since the start of its estimates, in January 1997, for the 19 countries that have adopted the single currency. In November, inflation in the euro zone had already broken a record, at 4.9%.

These figures are well above the European Central Bank’s (ECB) target of 2% inflation in the euro area. But, for the monetary institution, this inflation is transitory. The surge in prices in recent months can be explained above all by the exceptional increase in gas and electricity prices.

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Return below 2% inflation only in 2023

In December, the annual increase in energy prices reached 26%, far ahead of the other components, Eurostat explained in a statement. Prices for food, alcohol and tobacco still rose 3.2%, ahead of those for industrial goods (2.9%) and services (2.4%).

Before Christmas, the ECB had significantly raised its inflation forecasts in the euro zone, already citing energy prices, but also supply difficulties in industry, which disrupt production while consumer demand is particularly strong. strong. The European financial institution now expects prices to rise 3.2% in 2022, against 1.7%.

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It anticipates a return below the 2% threshold only in 2023, a horizon that has steadily widened in recent months. The president of the institution, Christine Lagarde, ruled “Very unlikely” an increase in 2022 of its key rates, currently at their historic low. The new wave of Covid-19, caused by the Omicron variant, is creating additional uncertainty for the European and global economy.

Italy and France below the euro zone average

“After reaching 5% in December, inflation in the euro zone should fall this year due to the fall in the energy component”, however predicts Jack Allen-Reynolds, analyst for Capital Economics. “We can expect to see lower inflation rates from now on, because the increase in energy will calm down”, also commented Bert Colijn, economist for the bank ING.

The rise in prices is causing concern among households whose incomes are not increasing at the same rate. The anguish is particularly palpable in Germany, the largest European economy, where the rise in prices, at their highest since 1992, is on the front page of the newspapers.

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Among the large countries, Spain (6.7%) and Germany (5.7%) saw the largest increases in December, exceeding the European average. Conversely, prices remained more stable in Italy (4.2%) and especially in France (3.4%), according to harmonized European data calculated by Eurostat.

The United States faces the same difficulty

Inflation was also particularly high in the Baltic countries, the highest level for the euro zone being recorded by Estonia (12%), ahead of Lithuania (10.7%). The smallest price increases were in Malta (2.6%) and Finland (3.2%).

The situation is even more tense in the United States, where consumer prices rose 6.8% in November, a pace unprecedented since June 1982. Very bad news for President Joe Biden, who has promised to reverse the trend but is struggling to get its social and environmental spending plan adopted.

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Officials at the US central bank, the Fed, believe it might be justified to raise interest rates earlier than expected, especially if Omicron further bolsters price hikes, according to the minutes of its latest monetary meeting , published Wednesday. Like the ECB, the Fed has raised its inflation projections. However, it withdrew from its official press release the adjective “Transient”, used since the beginning of the crisis to qualify the rise in prices.

The World with AFP

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Euro zone: inflation reached 5% in December, its highest level in twenty-five years