A stunning new jump in consumer prices in Europe suggests that inflation has stubbornly worked its way across the continent despite slowing growth, complicating policymakers’ efforts to steer economies through a difficult winter and potential recession.
Consumer prices in the 19 countries that use the euro as their currency rose at a record annual rate of 10.7 percent in October European Commission reported on Monday. In September, the rate was 9.9 percent. Twelve months ago, the rate was 4.1 percent.
The relentless upward march is accentuating the difficult choices facing Europe’s elected leaders and central bankers. They renewed their determination to stop the price hike European Central Bank It announced last week that it raised interest rates by three-quarters of a percentage point for the second time in a row. until SeptemberThe bank has not made such a large increase since 1999, in the early days of the eurozone.
But there are growing concerns that efforts to control inflation by making borrowing and mortgages more expensive will hasten countries’ slide into recession, stifling investment and increasing unemployment.
Such as International Monetary Fund He recently warned: “European policymakers face tough trade-offs and tough policy choices as they tackle a toxic combination of weak growth and high inflation that could worsen.”
Although the committee reported that production grew 0.2 percent during the quarter that spanned July, August and September – a higher-than-expected rate – many economists agreed that a recession in Europe was inevitable. On Monday, many said they expect growth to deteriorate in the last three months of the year.
The European Central Bank specifically pointed to the problem of bringing in inflation without causing the economy to slip into a downward spiral.
When Christine Lagarde, the bank’s president, announced the rate hike last week, she implied that the bank’s aggressive stance could be waning. However, high levels of inflation now are likely to encourage stronger opposition from members of the House who remain optimistic about the fight against inflation.
“I expect this will reinforce this division within the ECB’s governing body,” Lucrezia Richlin, professor of economics at London Business School, said of this latest report from Eurostat, the commission’s statistical office.
She said the combination of higher-than-expected inflation and output indicates that a lack of supply is not the only problem; Increased consumer demand also contributes to higher prices.
Painfully high energy and food prices continued to drive inflation to record levels. Over the past 12 months, energy prices have increased by 41.9 percent while food prices have increased by 13.1 percent. with Russia’s withdrawal From an agreement that allowed the export of grain from Ukraine, grain prices are likely to rise even more.
Also of concern are signs that inflation is extending its reach to other sectors.
More than half of the eurozone countries posted double-digit inflation rates in the year to October, including Germany (11.6 percent); Netherlands (16.8%); Italy (12.8%) and Slovakia (14.5%). In the Baltic states, rates are over 21 percent. France recorded the lowest rate of 7.1 percent.
Consumer spending partially pushed Germany, Europe’s largest economy, to an annual growth rate of 0.3% during the third quarter. The Italian economy grew by 0.5 percent, and the Swedish economy by 0.7 percent. Overall production slowed from the 0.8% recorded over the previous three-month period. in another place, growth It slowed in the third quarter: Production in both France and Spain increased by just 0.2 percent, while the economies of Austria and Belgium contracted by 0.1 percent.
In the largest bloc of 27 countries that make up the European Union, growth in the third quarter increased by 0.2 percent, as did the eurozone.
In the US, consumer prices rose 8.2 percent in the year to September. Britain’s inflation rate was 8.8% during the same period.
The International Monetary Fund has urged central bank governors to stay the course, possibly over the next year. He noted that “nearly half of the recent rise in European core inflation remains unexplained by its usual drivers,” suggesting that the war in Ukraine and the aftermath of the coronavirus pandemic contributed to a new inflationary dynamic.
Most central bankers remain firm. The Federal Reserve Interest rates are expected to raise three-quarters of a percentage point when policymakers meet on Wednesday. This will be the sixth increase this year. The Bank of England, which meets on Thursday, is also expected to raise interest rates by the same amount.
The sting from interest rate increases by the Federal Reserve is being felt in regions around the world. Higher interest rates attract investors, which raises the value of the dollar. For emerging countries with large dollar loan bills, the already heavy burden is increasing even more. At the same time, countries that must import American goods or necessities such as energy and food that are often priced in dollars are seeing them become much more expensive. they become poorer.
While most economists have urged a hard line on inflation, there are a growing number of voices questioning whether central bankers are moving away too much, too quickly. Higher interest rates will not suddenly increase the supply of oil, wheat, and microchips, but may exacerbate shortages by hampering investment.
Production in July, August and September fell 0.6 percent from 0.8 percent over the previous three months.
“The slowdown may have been stronger than the headline suggests,” Klaus Vestisen, chief eurozone economist at Pantheon Macroeconomics, wrote in a note on Monday, adding that growth is expected to decline in the fourth quarter because “high interest rates discourage investment.” Inflation that remains high is tightening consumer belts during the winter season.”
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