According to reports, last month was the strongest month of inflation in 13 years in the Eurozone. This is mainly due to the ongoing energy crisis.
Eurostat, a European statistical agency, reported that euro zone inflation rose 3.4% in September. Compared to a year earlier, this is the biggest increase since September 2008 (3,6%).
In September, Germany’s consumer price index (CPI) reached 4.1 percent, the highest level in about 30 years. Eurozone’s largest economy, Germany, is particularly sensitive to inflation.
The eurozone is experiencing high inflation due to rapidly rising energy prices and shrinking supply chains, two challenges common to today’s world.
In particular, as winter approaches in Europe, the demand for electricity for heating is beginning to increase dramatically, and natural gas prices, the major fuel for thermal power plants, are rising sharply.
Natural gas prices have risen by nearly 400% year-over-year near the Dutch TTF, the European benchmark for natural gas.
Despite strong demand and supply disruptions, energy prices are expected to increase in the future, so inflationary pressure is unlikely to abate.
Bank of America (BoA) predicted that international oil prices would surpass $100 per barrel this year. It would be the first time in seven years.
The surge in energy prices, which is the backdrop to the European price spike, is causing disruptions across Europe.
Food production is also suffering from the soaring prices of natural gas. CO2 production was affected, leaving supermarket shelves empty.
On the 30th of last month, French authorities took measures to curb the rise in consumer energy prices. However, before the price halting measures went into effect, consumer gas prices rose 12.6% in France on January 1.
Central banks remain relaxed.
Just as the U.S. Federal Reserve (Fed) sees the current inflation situation as temporary, the European Central Bank (ECB) sees a temporary trend that will soon return to normal.
As ECB President Christine Lagarde points out, while the recent rise in energy prices due to an imbalance between supply and demand will cause inflation to rise again, the current inflation is temporary.
According to ING’s global head of macro, Kasten Berzenskiy, the firm believes inflation will stabilize shortly since it is temporary and is pessimistic about widespread inflation.
He warned, however, that the central bank could ignore inflation and continue to fail to respond appropriately. He stressed the need for the central bank to be vigilant in its monetary policies response to North Korea.