Eurozone Inflation Reaches Record-High in December
January 6, 2022
Consumer prices in the eurozone increased in December at the fastest pace on record, accelerating past November’s record-setting pace, despite expectations from economists and European Central Bank (ECB) officials that inflationary pressures would ease.
Soaring energy costs and supply-chain disruptions have driven inflation in the eurozone to the highest level since the currency was created. Consumer prices were up 5% from a year earlier in December, faster than the 4.9% annual increase in November. Economists surveyed by the Wall Street Journal had expected the inflation rate to slow to 4.7%.
The unexpected increase has prompted calls for the ECB to act more aggressively to combat inflation. While the Federal Reserve and other central banks around the world have signaled intentions to tighten monetary policy, EBC President Christine Legarde has maintained the stance that inflationary pressures would remain elevated in the near-term, but ease as the year progresses. She believes a rate hike would not be the correct response, in part because, by the time any impact from an increase would be felt, inflationary pressures would already be easing.
There are initial signs from France and Germany that prices are indeed stabilizing, but surging energy costs remain a concern for the region. Mounting political tensions with Russia have caused natural gas prices to increase again. The Omicron variant has also complicated economic outlooks for the region, as additional supply disruptions could increase inflationary pressure. Conversely, if the variant slows the economic recovery, it could ease inflation.