Eurozone inflation drops from two-year highs

Eurozone inflation drops from two-year highs


Due to slower growth in energy and service prices, Eurozone inflation has fallen for the first time in nine months, although economists expect inflation to accelerate again in the coming months.

According to Eurostat data, the Eurozone Consumer Price Harmonization Index rose at an annual rate of 1.9% in June, which was lower than the two-year high of 2% in June.

Core inflation-excluding volatile energy, food, alcohol and tobacco prices-fell from 1% to 0.9%. The prices of non-energy industrial products have risen rapidly, but they have been offset by the decline in service industry and energy inflation.

Most economists expect that inflation in the euro zone will resume its upward trend in the second half of this year, making it higher than the European Central Bank’s target of slightly below 2%, and sparking debate about how long its ultra-loose monetary policy should last.

However, the European Central Bank predicts that next year the inflation rate will fall below the target level, reaching only 1.4% in 2023. Although some economists think this is an underestimation, they suspect that prices may continue to rise due to the weak labor market in the Eurozone.

The unemployment rate has recently started to fall, but the number of unemployed across the EU is still 1.9 million higher than the pre-pandemic level of 15.4 million.European Central Bank estimate A similar number of people were fired or completely withdrawn from the labor market.

Capital Economics macro economist Andrew Kenningham said: “We suspect that by the end of this year, the headline inflation rate will rise above 2.5%, but will fall back to only about 1% by 2022, and will Mid-term.”

inflation After the removal of pandemic restrictions and the accelerated pace of vaccination, the virus has rebounded in many countries, which has boosted business orders and consumer spending. This has prompted some economists to call on the central bank to start controlling stimulus policies.

As Germany implemented a six-month temporary VAT cut in July 2020, Eurozone inflation will receive a technical boost later this year.

There are also signs shortage The soaring prices of materials such as semiconductors and steel, as well as the prices of bulk commodities, have begun to drive prices for global producers.The price of the goods leaving Chinese factory It increased by 9% year-on-year in May, the fastest growth rate since the 2008 financial crisis.

The European Commission said on Tuesday that its latest survey of EU companies showed that sales prices are expected to rise for the fourth consecutive month, and sales prices for retail and industrial companies are expected to rise to record highs.

Earlier this week, the governor of the Bundesbank, Jens Weidmann, stated that caveat The “upside risks” to the inflation outlook are “primary.”

However, most economists believe that this year’s inflation spike will be temporary.

IHS Markit economists Ken Wattret and Venla Sipila-Rosen wrote in a report this week: “The recent increase in inflation in Western Europe is mainly driven by energy prices, and the output gap is still large. Demand-side inflation There is not much pressure.”

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