Eurozone inflation hits 10.7% in October

Eurozone inflation hits 10.7% in October

Inflation in the Eurozone remains extremely high. Demonstrators in Italy used empty shopping carts to demonstrate the cost of living crisis.

Stefano Montesi-Corbis | Corbis News | Getty Images

Eurozone inflation rose above 10% in October, highlighting the depth of the region’s cost-of-living crisis and increasing pressure on the European Central Bank.

Preliminary data from European statistics office on Monday showed headline inflation last month at 10.7% a year. This is the highest monthly reading since the eurozone was formed. The bloc of 19 has faced higher prices over the past 12 months, particularly on energy and food. But the increases were accentuated by Russia’s invasion of Ukraine End of February.

This proved true again, with energy costs expected to post the strongest annual increase in October at 41.9% versus 40.7% in September. Food, alcohol and tobacco prices also rose 13.1% over the same period versus 11.8% in the previous month.

“Inflation rose again in October and is a real Halloween nightmare for the ECB,” analysts at Pantheon Macroeconomics said in an email.

Salomon Fiedler, an economist at Berenberg, said: “The ongoing rise in consumer prices and still robust domestic demand over the summer point to the risk that the European Central Bank could hike interest rates by 75 basis points in December instead of the 50 basis points that were expected we currently have currently anticipate.”

Italy’s inflation above 12%

Monday’s data comes after individual countries reported flash estimates last week. In Italy, headline inflation came in at 12.8% yoy, beating analysts’ expectations. Germany also said inflation rose to 11.6% and in France the figure hit 7.1%. The varying values ​​reflect the actions taken by national governments as well as the degree of dependence those nations have or have had on Russian hydrocarbons.

However, there are euro countries where inflation has risen by more than 20%. These include Estonia, Latvia and Lithuania.

ECB hike: I don't see

That European Central Bank – whose main aim is to control inflation – on Thursday confirmed further interest rate hikes in the coming months in a bid to lower prices. It said in a statement that it had made “significant progress” in normalizing interest rates in the region but “expects to raise interest rates further to ensure inflation’s timely return to its medium-term inflation target of 2%”.

The ECB decided last week to raise interest rates by 75 basis points for the second time in a row.

Said at a subsequent press conference ECB President Christine Lagarde said the likelihood of a recession in the euro zone had increased.

Growth numbers released on Monday showed GDP (gross domestic product) for the euro zone was 0.2% in October. This comes after the region grew at a rate of 0.8% in the second quarter. Only Belgium, Latvia and Austria recorded GDP values ​​below zero.

So far, the 19-strong bloc has dodged a recession, but an economic slowdown is evident. Several economists are forecasting a decline in GDP for the current quarter.

Andrew Kenningham, chief economist for Europe at Capital Economics, said: “The increase in eurozone GDP in the third quarter does not change our view that the eurozone is on the brink of recession.”

“But with inflation rising well above 10%, the ECB will prioritize price stability and still proceed with rate hikes,” he added.

That Euro was trading below par against the US dollar during the European early hours on Monday and ahead of the new data releases, and was little changed after the new reads. The euro was weaker against the greenback, and that’s also something the ECB was concerned about, fearing this will push euro-zone inflation even higher.

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