Eurozone inflation jumps to record 10% in September on energy prices

Eurozone consumer prices skyrocketed by a record 10 per cent in September, official data showed on Friday, as inflation reached double digits on the back of soaring energy prices caused by Russia’s war on Ukraine.

Stoked by a staggering 40.8 per cent rise in energy prices, the yearly inflation rate in the 19-country single currency area hit its highest level since records began, according to Eurostat.

The historic level of inflation will encourage the European Central Bank to stay on its current path of rate hikes, in an effort to cool prices despite the risk of triggering economic recession in Europe.

The ECB is desperate to prevent inflation from taking root in the economy and is taking measures that will reduce demand and could therefore slow growth.

The ECB argues that the hikes are also necessary to put monetary policy on a more “neutral” footing after many years of negative rates and stimulus programmes that pumped tens of billions of euros into the eurozone economy.

The leap to 10 per cent followed a 9.1 per cent rise in August and doused hopes that inflation would begin to ease as energy markets stabilise seven months after Russia launched its invasion of Ukraine.

Making matters more complicated for policymakers, the eurozone’s powerhouse economies showed widely divergent inflation rates, with Germany seeing price hikes of 10.8 per cent and France at 6.2 per cent.

In the Netherlands inflation prices rose by 17.1 per cent, the highest since World War II, in a major leap from an already sky-high 12 per cent a month earlier.

Also muddying the waters, some eurozone countries are pushing through major national spending to ease the energy price burden on consumers, creating further fragmentation in the European economy.

In an urgent effort to tame prices, European Union energy ministers on Friday agreed to cut peak-hour power consumption and impose windfall levies on energy companies.

In the face of a tough balancing act, ECB chief Christine Lagarde indicated this week she would go ahead with another hefty rate hike of 0.75 percentage points at the bank’s next meeting on October 27.

Energy prices in Europe remain under intense pressure with Russia starving the continent of gas supply as winter approaches.

The ECB’s target for inflation is two percent and efforts to get closer to that level have raised fears that the central bank may lead the bloc into a recession in its effort to reduce prices.

Eurostat data also published on Friday showed the eurozone unemployment rate remaining at a record low of 6.6 per cent in July.

This will further encourage the ECB to stay the course and choose fighting inflation over concerns about economic growth and its consequences on employment.

Separately, a closely-watched measure of US inflation showed the annual pace of price increases slowed slightly in August as energy costs fell and increases in food costs eased, according to government data released on Friday.

But while the data moved in the right direction, it may not provide much comfort to President Joe Biden or the Federal Reserve since inflation remains at the highest level since the early 1980s.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index, increased 6.2 percent from August 2021, down slightly from the pace in July and from the 7.0 percent peak in June, the Commerce Department reported.

Inflation picked up speed last year and has accelerated this year as global supply chain snarls and worker shortages pushed prices higher -- factors worsened by Russia’s war on Ukraine, which sent food and energy prices soaring worldwide.

Energy prices increased 24.7 per cent over the past year while food prices are up 12.4 percent, the report showed.

The Fed focuses on the PCE price index as it reflects consumers’ actual spending, including shifts to lower cost items, unlike the more well-known consumer price index (CPI), which also slowed in August from the blistering 9.1 percent rate in June — the highest in 40 years.

The Fed has raised interest rates aggressively this year to try to cool demand and tamp down inflation pressures, and officials have said more increases are coming before the year is out.

Stock markets fluctuate: Stock markets fluctuated and the pound seesawed on Friday as investors tracked fresh growth and inflation data at the end of another turbulent week.

The pound jumped on revised figures showing the UK economy had avoided recession -- but it swiftly fell back on expectations of an eventual downturn owing to sky-high inflation.

Britain’s borrowing costs soared and the pound hit a record dollar-low earlier this week days after the government announced a controversial tax-cutting budget.

Stock markets in Frankfurt and Paris were higher in afternoon trading but London was in the red.

In the United States, data showed the Federal Reserve’s preferred yardstick for inflation — the personal consumption expenditures price index — was higher than expected.