Euro zone inflation soars to a record 10%, piling pressure on the European Central Bank

Christine Lagarde, European Central Bank (ECB) president addresses a information convention following the ECB’s financial coverage assembly in Frankfurt, Germany, September 8, 2022. 

Kai Pfaffenbach | Reuters

Euro zone inflation hit a new record excessive of 10% in September, Eurostat knowledge confirmed on Friday, up from 9.1% in August and above consensus projections of 9.7%.

The studying additionally confirmed worth will increase broadening out from unstable meals and vitality costs into practically all segments of the 19-member bloc’s economic system.

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Energy costs rose 40.8% year-on-year, up from 38.6% in August, adopted by meals, alcohol and tobacco at 11.8%, up from 10.6% final month.

However, core inflation, which excludes meals and vitality, climbed 4.8% on the 12 months, up from 4.3% in August, and economists broadly count on the state of affairs to worsen earlier than it will get higher.

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Friday’s print will exert extra pressure on the European Central Bank to hike rates of interest aggressively at its October assembly, and will increase the chance of a longer and deeper recession throughout the euro zone.

Seema Shah, chief international strategist at Principal Global Investors, stated that whereas headline inflation could also be at its peak, the continent’s state of affairs stays deeply regarding.

“Indeed, while headline inflation may start to ease as a result of base effects and volatile energy prices, with the unemployment rate itself at a new low, core inflation is building momentum and is likely to rise further in the coming months,” she stated in an e mail Friday.

Italy's debt-to-GDP ratio is the second-highest in the euro zone

Euro zone unemployment got here in at 6.6% in August, unchanged from July and exhibiting proof that the labor market has remained resilient regardless of the impending recession and vitality disaster sweeping the continent.

“With labor markets still tight and inflation gradually becoming more entrenched in the Euro area economy, today’s numbers will only embolden the ECB to focus solely on inflation, giving them a green light to introduce another sizeable policy rate hike – even as the economy rushes headlong into a tough winter and recession,” Shah stated.

“The Euro area faces a particularly difficult dilemma. Not only is containing inflation largely out of the ECB’s reach due to its supply side foundations, but raising policy rates will only deepen the acute economic weakness which is beginning to engulf the region.”

The inflation gap between the U.S. and the euro area will widen in the next 2 quarters: JPMorgan

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