The annual inflation rate in the Eurozone was confirmed at a record high of 5% in December, up from 4.9% in November, final data from Eurostat showed on Thursday (Jan. 20). This was the highest inflation on record since the single European currency was created and matched the preliminary estimate released on January 7.
The biggest factor in the rise were energy prices (+2.46 percentage points, pp), followed by services (+1.02 pp), non-energy industrial goods (+0.78 pp) and food, alcohol & tobacco (+0.71 pp).
The lowest annual rates were registered in Malta (2.6%), Portugal (2.8%) and Finland (3.2%) while the highest were recorded in Estonia (12.0%), Lithuania (10.7%) and Poland (8.0%).
Core inflation, which excludes prices of energy, food, alcohol & tobacco, held steady at 2.6% in December, matching the initial estimates.
In the wider European Union (EU), annual inflation was 5.3% in December 2021, up from 5.2% in November. Compared with November, annual inflation fell in seven Member States, remained stable in two and rose in eighteen. A year earlier the annual inflation rate was -0.3% in the eurozone and 0.3% in the EU, according to the statistical office of the bloc.
European Central Bank (ECB) President Christine Lagarde in an interview with France Inter radio on Thursday said that inflation will “gradually decline in 2022,” and continue to fall in 2023 and 2024.
According to her, there are some indicators that suggest supply chain-related challenges are subsiding, which is likely to contribute to the stabilization of prices.
Lagarde also said that the Frankfurt-based institution doesn’t need to follow the exact steps of the United States Federal Reserve (Fed) in regard to its monetary policy.
The Fed’s trajectory for hiking interest rates and tightening its ultra-loose Covid-era monetary policy have made investors nervous.
Bank of Spain Governor Pablo Hernandez de Cos also stated on Thursday that the ECB is not expected to raise interest rates before the end of 2022. His comments echo those of Lagarde who said that a rate hike is “very unlikely” before 2023.
The ECB targets inflation of 2% over the medium term.
Meanwhile, U.S. consumer prices soared last year by the most in nearly four decades. The annual inflation rate in the world’s largest economy accelerated to 7% in December 2021, a fresh high since June of 1982.
Isabella Weber, an Assistant Professor of Economics at the University of Massachusetts Amherst, compared the situation in the US today with the situation in the after World War II. “Then and now large corporations with market power have used supply problems as an opportunity to increase prices and scoop windfall profits”, Weber wrote.