Inflation levels in the Eurozone hit a 13-year high this September in the region’s biggest price spike since before the 2008 global financial crisis. Eurostat, the European Union’s statistics office, reported an overall annual inflation rate of 3.4 percent in the 19 countries which have adopted the euro. These inflation levels are up from three percent in August, and the highest inflation readings in the area since 2008. Calculations of core inflation in the region, a tally that excludes volatile energy, food, alcohol, and tobacco prices, arrived at a level of 1.6 percent, the highest reported rate since 2012.
A variety of factors have contributed to these raised levels, such as global supply shortages and an overall economic rebound in the Eurozone. A 2.3 percent increase in durable goods prices during August overwhelmed manufacturers, leading to production and shipping bottlenecks. Energy prices rose to a whopping 17.4 percent in September, driven by a steady increase in wholesale gas prices as well as a spike in crude oil prices. In contrast to last year’s delays, summer clothing sales in France and Italy were on time this year, which has contributed to higher pricing in the fashion industry in comparison to previous years.
Germany is experiencing some of the worst inflation surges, with country-wide rates sitting at 4.1 percent. This figure is predicted to hit five percent by the end of 2021 due to a temporary sales tax cut last year to boost consumption and soften the economic blow caused by pandemic business closures. Imported inflation rates in the country are at 15 percent, the highest reading in over forty years. However, almost all Eurozone countries are facing similar struggles. In August, inflation in France rose to 2.4 percent, the country’s highest rate since 2018. The pace of price growth in Italy hit 2.6 percent, the fastest rate since 2012 and half a point more than the median predicted rate. In Spain, consumer pricing rose 0.4 percent from July to August according to data from the National Statistics Institute (INE). Of the 19 countries using the euro, only four now have overall inflation rates below two percent, down from 16 last March.
The European Central Bank (ECB), which is responsible for maintaining Eurozone inflation rates, addressed concerns over inflation in late September. ECB President Christine Lagarde, called for patience, saying “the key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term.” Bank officials insist this wave of inflation will pass by early 2022, at which point growth will remain under predicted target rates for the following years. Wages are not predicted to keep up with inflation for the rest of the year, indicating that there are no signs yet of a wage-price spiral, which is seen as a prerequisite for inflation to remain at an elevated level in the medium term. However, energy prices are expected to take longer to bounce back. “Energy is going to be a matter that will probably stay with us longer. Because we are transitioning, as well, from fossil industry driven sources of energy,” Lagarde said.
Yet some economists fear the situation is more dire than the ECB has suggested. “We think there are high chances that this inflation is less transitory than all central banks, including the ECB, are suggesting,” said Luigi Speranza, an economist with BNP Paribas. Economist Elmar Voelker, from the German bank LBBW, struck a similarly cautious tone, predicting inflation would continue to rise until early 2022 when “price pressures […] will probably ebb, but the exciting question will be how quickly and how strong this weakening will be.” As the medical crisis brought on by the pandemic recedes, its economic shocks may prove longer-lasting.