Euro zone inflation hits new record of 9.1% as ECB hawks push rates hike

Euro-area inflation accelerated to another all-time high and strengthened the case for the European Central Bank (ECB) to consider a sharp interest-rate hike when it meets next week.

Consumer prices in the 19-nation currency area jumped 9.1 per cent from a year ago in August, beating the 9 per cent median estimate in a Bloomberg survey of economists, led by energy and food. Stripping out those drivers, a gauge of underlying euro-area inflation inched up to a fresh high of 4.3 per cent, highlighting how price pressures continue to become more broad-based.

The figures show that the Republic’s inflation, as measured by the Harmonised Consumer Index of Prices (HICP), fell back in August to 8.9 per cent from 9.6 per cent in July.

The HICP is a separate measure from the consumer price index (CPI) produced on a monthly basis by the Central Statistics Office (CSO). The latest CPI indicated that prices rose 9.1 per cent in the year to July, with the August data set to be published next month.

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Five of the 19 euro zone countries had headline inflation rates lower than in the State, while 13 had a higher rate. Estonia had the highest rate of price growth at 25.2 per cent, while France had the lowest at 6.5 per cent.

Looking at the main components of euro area inflation, energy had the highest annual rate in August (38.3 per cent, compared with 39.6 per cent in July), followed by food, alcohol and tobacco (10.6 per cent, compared with 9.8 per cent in July) and services (3.8 per cent, compared with 3.7 per cent in July).

Within the HICP for Ireland in August, energy was down by 2.8 per cent in the month but up by 39.9 per cent since August last year.

The question now is whether the data is sufficient to nudge the ECB toward the 75 basis-point rate increase that some on its 25-strong Governing Council want debated. It is an increment that’s been deployed twice already by the Federal Reserve, though dovish ECB officials caution against following suit as Europe braces for a recession.

The quickest price gains since the euro was introduced more than two decades ago leave policy makers in Frankfurt seeking a delicate balance: Rates must be raised sufficiently to steer inflation back toward their 2 per cent target, but not so much that it chokes off whatever economic momentum remains amid fears of a Russian energy cutoff this winter.

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Officials including executive board member Isabel Schnabel said the ECB should focus more on inflation outcomes than projections as the war in Ukraine complicates forecasting.

But while Russia’s invasion is certainly behind the spike in energy prices, Dutch central bank chief Klaas Knot said Tuesday that strong consumer demand after lockdowns ended has also pushed prices higher. Rising wages and a weak euro represent upside risks, he warned, urging a “swift normalisation of monetary policy. — Bloomberg