The European Union Inflation Is Showing Signs Of Cooling Down
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The eurozone economy came under tremendous pressure in the aftermath of Russia's invasion of Ukraine in February 2022, when energy and food costs soared last year. In an effort to fight rising prices, the European Central Bank raised interest rates four times in 2022.
Previous data
The reopening of the European economy in 2021 after the sudden shock of COVID-19 in 2020 is behind a number of factors that have driven prices up so rapidly in recent months. Global supply chains have yet to recover from production issues, travel restrictions, and labor issues caused by the pandemic. Rising energy costs have only exacerbated supply problems, especially in the transport sector.
Europe and most of the world were already hit by soaring energy prices - which contribute to inflation - even before Russia invaded Ukraine in late February.
The conflict has exacerbated the energy crisis, fueling global fears that it could lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September that it would not fully resume gas supplies to Europe until the West lifted sanctions. Russia typically supplies around 40 percent of Europe's natural gas.
Euro area annual inflation is expected to be 9.2% in December 2022, down from 10.1% in November according to a flash estimate from Eurostat, the statistical office of the European Union.
Of the components of inflation, energy continued to be the biggest driver in December, but declined from previous levels. According to the latest data, energy costs fell from 34.9% in November to around 25.7% in December. Unusually high temperatures in the fall and winter drove energy prices back to pre-war levels.
In terms of countries, the Baltic states once again recorded the highest spikes in inflation, which amounted to around 20%.The Baltic countries continue to be the hardest hit. In particular, Latvia experiences the highest level of inflation in the Eurozone, which stood at 20.7 percent in December (down from 21.7 percent in November), compared to 7.4 percent a year ago.
The sharpest fall in inflation was in Estonia, one of the countries where prices rose the most in recent months, where it fell to 17.5 percent. in December compared to 21.4 percent.
Source: investing.com
Inflation estimate
Currently, the December inflation reading is expected to maintain the previous level (9.2%) and stay above 9% this time.
Source: investing.com
HICP
To facilitate country comparisons, EU Member States calculate the Consumer Price Index according to international definitions and methods. The European Central Bank (ECB) uses the HICP to formulate its monetary policy in the euro area. In addition, most countries produce their own national consumer price index.
Prices rose the fastest in Hungary, where the inflation rate was 23.1%. By contrast, Spain's inflation rate was 6.7%, the lowest in the EU this month. Inflation in the EU last month was higher than ever before.
ECB interest rate
While the new figures are undoubtedly positive, inflation in Europe remains well above the European Central Bank's (ECB) target of keeping the eurozone below 2%. Despite further signs that inflation is coming down, analysts say it is too early to celebrate and do not expect a return from the region's central bank.
In an effort to fight rising prices, the European Central Bank raised interest rates four times in 2022 and has said it will likely continue to do so this year. The bank's main interest rate is currently 2%.
Speaking earlier this week, ECB Governing Council member and Bank of France governor Francois Villeroy de Galhau said interest rates could peak this summer.
We must expect that the ECB would be prepared to remain at the terminal rate as long necessary
Source: investing.com
