Eurozone Consumer Prices Close to Record Highs - ECBSociety | August 31, 2021, Tuesday // 16:34| views
The European Central Bank announced that the consumer price index of the Eurozone has edged to its highest level in a decade. The bank admitted that it had underestimated the potential risk of price increase in EU. The latest figures may provoke a change in the overall ECB policy aimed at containing inflation at significantly lower levels, Reuters elaborated.
Eurostat reported that consumer prices in the 19 countries sharing the euro surged by 3% this month, after accelerating by 2.2% in July, far above expectations for 2.7% and exceeding the ECB's 2% target. The surge was fuelled by higher energy costs but food prices also rose, while there were also unusually large increases in the prices of industrial goods. The numbers are likely to make for uncomfortable reading at the ECB, which has repeatedly raised its inflation forecast this year only for the actual numbers to beat its projections, even as price growth is likely to peak only in November. With inflation in Germany, the Eurozone's largest economy and the ECB's biggest critic, expected to approach 5% in the coming months, the bank is likely to come under increasing public pressure to address inflation that is reviving long-dormant memories of runaway prices. The ECB argues that single one off factors related to the economy's reopening after the Covid-19 pandemic account for the bulk of the inflation surge, and that price growth will quickly moderate in early 2022r.
While ECB policymakers are acknowledging that they underestimated price pressures in the near-term, they continue to point to weak underlying inflation readings as supporting evidence for loose policy. Core inflation, however, also surged in August with inflation excluding volatile food and fuel prices accelerating to 1.6% from 0.9%, while an even narrower measure that also excludes alcohol and tobacco, rose to 1.6% from 0.7%. The ECB will next meet on 9 September and must decide on the pace of its bond purchases over the coming quarter. While some adjustment is possible, Lane argued that it would be at the margins as the ECB is committed to maintaining "favourable financing conditions"
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