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Inflation rate in Europe hits 25-year high

Inflation rate in Europe
Inflation rate in Europe

Inflation rate in Europe reached its highest level in 25 years last December at 5% in light of the rise in energy prices, “but a decline in inflation is expected in 2022.”

The inflation rate is still far from the European Central Bank’s target of 2%.

However, the European Central Bank considers that the rise to 5% is temporary, and is expected to decline in 2023 after peaking in 2022.

Inflation rate in Europe

The rise, which was observed months ago, can be explained by the significant rise in gas and electricity prices.

The annual rise in energy prices in December amounted to 26%, according to the European statistical agency (Eurostat).

Before Christmas, the European Central Bank raised its inflation forecast for the euro zone, citing energy prices and supply difficulties as consumer demand rose strongly.

European Central Bank President Christine Lagarde did not expect an increase in the interest of her institution in 2022, knowing that it is currently at its lowest historical level.

The surge in new infections in light of the Coronavirus pandemic, due to the outbreak of Omicron, is leading to an additional instability for the European and global economy.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said euro-zone inflation was likely to remain above 2 per cent “at least until the fourth quarter.”

He predicted that as a result the ECB would “begin to prepare the ground for tighter monetary policy in 2023.”

The rise in prices worries families, whose incomes do not rise at the same pace as the increase in inflation.

This is the highest annual inflation rate for the eurozone, which includes 19 countries, since 1997, Eurostat said.

Economic recovery

The increasing price hike affects the economic recovery of the European bloc. Eurostat points out that energy prices are a source of concern for European Union countries.

The wholesale prices of natural gas witnessed an increase over the past months, in addition to the noticeable rise in the price of electricity, which had an impact on consumers in many countries.

The eurozone recorded an annual inflation rate of 4.9% during the month of November 2021. Energy prices alone rose 27.5% in November 2021, compared to the same period in 2020.

The inflation rate is measured based on the prices of food, tobacco, energy and non-energy industrial products.

The European Commission announced last November that it expected strong growth this year, a 4.3% increase in the EU’s gross domestic product, but warned that high inflation carried downside risks.

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