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Consumer prices jumped more than expected in August, driven by higher gas prices As well as a devastating drought, and there are other expected rises, which increases the suffering of families and companies because inflation Simply devouring its cash reserves.
This synchronization between high prices and low growth, often referred to asstagflationThe European Central Bank leaves only painful options that will add to the suffering of the eurozone’s 340 million people.
What makes the situation even more difficult for the bank is that the stimulus and easing monetary policy that it may take will only increase inflation and ultimately damage its credibility, threatening the foundations of its anti-inflation mandate.
However, monetary tightening will slow growth further, leading to an almost certain increase in the pace of the economic downturn from the start of the heating season in October.
Ultimately, policy makers will choose European Central Fighting inflation In an effort to curb it, they are likely to raise interest rates at every meeting remaining this year, raising borrowing costs for governments, businesses and households, even with finances already tight.
Indeed, today’s inflation numbers will make the case for a very substantial ECB rate hike by 75 basis points next week, and monetary easing will have to fight an uphill battle to bring the hike to 50 basis points, which is still a significant pace.
Inflation accelerated
Inflation accelerated in the 19 countries that share the single European currency to 9.1 percent in August from 8.9 percent the previous month, exceeding expectations once more as price pressures increased.
Christoph Weil, an economist at "Commerzbank": "Inflation is likely to jump in September… Thus, the pressure on the European Central Bank to continue raising interest rates significantly is likely to remain high.".
While the rise in food prices andenergy Unsurprisingly, the jump in service costs and 5% inflation in non-energy industrial prices are clearly worrying ECB policymakers.
They will also be concerned regarding the continued rise in prices in other related sectors, indicating that higher costs are now spreading to the entire economy, through so-called effects "second round".
Excluding food and fuel, inflation accelerated to 5.5 percent from 5.1 percent while a narrower measure, which also excludes alcohol and tobacco, rose to 4.3 percent from 4 percent.
Financial Services Group said "Nordea" in a note "We now expect the European Central Bank to raise interest rates by 75 basis points next week".
Recession?
In light of the above, avoiding deflation Something that appears to be getting tougher with economic sentiment lower than expected this month, highlighting growth concerns.
Higher energy costs will force households to direct their spending toward the heating bill, leaving fewer resources for other spending, especially services.
Industry will also be severely affected, as energy-intensive sectors are likely to reduce production. This will subsequently lead to a shortage of supply, which will increase inflation.
Riccardo Marcelli Fabiani, from Oxford Economics, said: "Higher inflation will put more pressure on demand, lower growth and push the eurozone into recession this winter".
Capping energy prices, as the European Union thinks, might help the ECB with its mission, but inflation is already very high and has been for a while, so policymakers will not have the luxury of avoiding the storm.
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Consumer prices jumped more than expected in August, driven by higher gas prices As well as a devastating drought, and there are other expected rises, which increases the suffering of families and companies because inflation Simply devouring its cash reserves.
This synchronization between high prices and low growth, often referred to asstagflationThe European Central Bank leaves only painful options that will add to the suffering of the eurozone’s 340 million people.
What makes the situation even more difficult for the bank is that the stimulus and easing monetary policy that it may take will only increase inflation and ultimately damage its credibility, threatening the foundations of its anti-inflation mandate.
However, monetary tightening will slow growth further, leading to an almost certain increase in the pace of the economic downturn from the start of the heating season in October.
Ultimately, policy makers will choose European Central Fighting inflation In an effort to curb it, they are likely to raise interest rates at every meeting remaining this year, raising borrowing costs for governments, businesses and households, even with finances already tight.
Indeed, today’s inflation numbers will make the case for a very substantial ECB rate hike by 75 basis points next week, and monetary easing will have to fight an uphill battle to bring the hike to 50 basis points, which is still a significant pace.
Inflation accelerated
Inflation accelerated in the 19 countries that share the single European currency to 9.1 percent in August from 8.9 percent the previous month, exceeding expectations once more as price pressures increased.
“Inflation is likely to jump in September…thus, pressure on the ECB to continue raising interest rates significantly is likely to remain high,” said Christoph Weil, economist at Commerzbank.
While the rise in food prices andenergy Unsurprisingly, the jump in service costs and 5% inflation in non-energy industrial prices are clearly worrying ECB policymakers.
They will also be concerned regarding the continued rise in prices in other related sectors, indicating that higher costs are now spreading to the entire economy, through so-called “second round” effects.
Excluding food and fuel, inflation accelerated to 5.5 percent from 5.1 percent while a narrower measure, which also excludes alcohol and tobacco, rose to 4.3 percent from 4 percent.
“We now expect the European Central Bank to raise interest rates by 75 basis points next week,” financial services group Nordea said in a note.
Recession?
In light of the above, avoiding deflation Something that appears to be getting tougher with economic sentiment lower than expected this month, highlighting growth concerns.
Higher energy costs will force households to direct their spending toward the heating bill, leaving fewer resources for other spending, especially services.
The industry will also be severely affected, as the energy-intensive sectors are likely to reduce production. This will subsequently lead to a shortage of supply, which will increase inflation.
“Rising inflation will put more pressure on demand, depressing growth and pushing the eurozone into recession this winter,” said Riccardo Marcelli Fabiani, from Oxford Economics.
Capping energy prices, as the European Union thinks, might help the ECB with its mission, but inflation is already so high and has been for a while, so policymakers will not have the luxury of avoiding the storm.
