EXPLAINER - What does record inflation signify for the eurozone

LONDON (AP), -- Friday's figures show that inflation in 19 euro-zone countries reached its highest point ever. This was due to rising food and energy prices.

EXPLAINER - What does record inflation signify for the eurozone

Let's take a closer look at these data:

What do the numbers mean?

According to Eurostat, the EU statistics office, consumer prices in the eurozone (composed of European Union countries like France and Germany) rose 5% in December, compared to the previous year.

The increase in energy prices was the most notable, rising 26% in the past year. This is slightly less than the previous month. From November's 2.2% rate of inflation, the increase in food prices accelerated to 3.2%. The price of goods grew at a faster rate of 2.9%.

However, prices for services increased by 2.4%. This suggests that holiday travel was being affected by the omicron version of COVID-19. After removing volatile items like food and energy from the equation, the core inflation rate in eurozone remained steady at 2.6%.

WHY IS IT SO IMPORTANT

This latest reading surpasses the November record of 4.9% and is the highest inflation rate since 1997, when records began for the euro currency. It was two years prior to its launch.

This means that everything, from groceries to fuel and food, is more expensive because of the economic recovery following the pandemic.

These numbers show how inflation is now a major issue that economic policymakers must address.

This puts pressure on the European Central Bank (ECB) to address inflation. Since it has kept interest rates extremely low to stimulate an economy that is recovering from the pandemic, it has not raised them. Omicron's arrival has forced the European Central Bank to rethink any decisions that could slow down economic growth. Analysts don't anticipate the European bank raising rates until 2023.

Inflation isn't just a problem for the EU. The U.S. consumer prices have increased at the fastest rate in 39 years and in Britain at their highest level in over a decade. The inflation rate in Turkey soared to 36% last month, which was the highest level in 19 years. Brazil's inflation rate accelerated to over 10%, the fastest pace for 18 years.

What do the EXPERTS THINK?

Economists believe that inflation in the eurozone will soon peak, if not already. Bert Colijn, senior economist at ING Bank said that natural gas prices are a major factor in the recent surge in inflation.

He said that the rising prices of oil and natural gas in futures markets suggests that energy inflation has likely peaked.

Colijn stated that the question now is "how steep the downward trend"

He and other economists forecast that core inflation will decrease but remain at or above 2.2% in the current year. This gives the European Central Bank some breathing space when it comes time to decide on a rate.

What are other countries doing?

Despite the omicron surge and its uncertain effects upon the global economy, central bank have raised interest rates to combat soaring inflation.

Last month, the Bank of England became the first major advanced economy's central bank to raise interest rates. The European Central Bank is more cautious, but it also plans to reduce some of its stimulus efforts in the coming year.

As consumer prices rose 6.8% in November, the U.S. Federal Reserve is working faster than Europe to tighten credit.

You need to login to comment.

Please register or login.

RELATED NEWS