Eurozone Inflation Dilemma: CPI at 7% and Lingering Concerns Amidst Rising Food Prices

FXMAG.COM: Could you please comment on the CPI in eurozone?

The CPI in the Eurozone in May might remain at 7% y/y.

For Spain and Belgium, the problem of inflation is fading into the background. Here, inflation indices are below the consensus level. For France and Germany, on the contrary, the topic of prices remains acute.

The food segment is still a key contributor to high inflation. Agricultural costs are decreasing, and energy is becoming cheaper. Yet, a number of products remain extremely expensive for consumers. By comparison, cheese in Germany now costs almost 40% more than last year, and potatoes are 14% more expensive. Throughout the EU, food inflation rose by almost 17% y/y in April and might be even higher in May.

The constantly rising food prices force households to cut demand at a time of low income. In Italy, for example, there was a special meeting of politicians about the rising price of spaghetti. This is a real problem.

Next, we see the following. The agricultural sector is reducing basic spending on food production. Yet labour costs are rising. In addition, supply chain issues persist. It is unlikely that food will become cheaper in the nearest future.

Globally, rising prices might put pressure on the ECB to raise interest rates further.