Supply Chain

Euro Zone December Inflation Confirmed At Record 5.0% On Energy Surge

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Euro zone consumer prices jumped at a record high pace in December, the EU's statistics agency confirmed, boosted by a surge in energy prices and supply chain bottlenecks as the economy recovers from pandemic lockdowns.

The European Union's statistics office Eurostat said consumer prices in the 19 countries sharing the euro rose 0.4% month-on-moth in December for a 5.0% year-on-year jump, the same as the initial estimate published on 7 January.

Energy was responsible for 2.46 percentage points of the overall year-on-year increase and more expensive services a 1.02 point boost. Non-energy industrial goods added 0.78 points and food, alcohol and tobacco together another 0.71 points.

Core Inflation

Without the volatile energy and food prices, or what the European Central Bank calls core inflation, prices went up 0.4% month-on-month and 2.7% year-on-year. An even narrower measure, also excluding alcohol and tobacco, showed prices up 2.6% year-on-year.

The ECB wants to keep headline consumer inflation at 2% over the medium term, but it has consistently underestimated price pressures and come under fire over this from some of its own policymakers.

With the economy recovering quickly from repeated lockdowns caused by the COVID-19 pandemic, energy prices took off, catching the ECB - which had predicted just a benign inflation bump a few months ago - off guard.

Inflation Drivers

Adding to the upward pressure, supply-chain bottlenecks resulted as households, with cash saved up, sharply increased spending on everything from new cars to restaurant meals.

Most of these inflation drivers are temporary, so price pressures should ease eventually. But views diverge on how fast inflation will come down and where it is likely to settle once the economy adjusts to a new normal.

The ECB sees inflation back under 2% by the end of this year, but a long list of influential policymakers question this, warning that risks are skewed towards higher figures and that above-target readings could persist into next year.

News by Reuters, edited by ESM. For more Supply Chain news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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