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Eurozone Inflation Unexpectedly Surges to New Record
February 2, 2022
Inflation in the eurozone climbed to a new record high in January, an unwelcome surprise for the economists who had anticipated price gains to begin moderating.
Consumer prices jumped 5.1% from a year ago in January, up from 5% in December. Economists polled by Bloomberg expected, on average, a 4.4% increase, and none of the economists predicted an acceleration.
Economists had been confident that the first inflation reading of the year would show a significant drop because changes previously made to Germany’s sales tax would no longer impact annual comparisons. Inflation did indeed slow in Germany and France, the eurozone’s two largest economies, but surging energy costs pulled price growth higher for the region as a whole. Stripping out energy and other volatile components like food, core inflation was 2.3%, down from last month’s 2.6% reading.
The unexpected acceleration has added pressure for the European Central Bank to raise interest rates. Thus far, ECB President Christine Lagarde has resisted the aggressive monetary tightening that central banks like the Federal Reserve and Bank of England have initiated. Lagarde has maintained the position that elevated price growth will pass as energy costs ease and supply-chain disruptions abate.
The markets expect that the ECB will pivot, with traders expecting a quarter-percentage point of increases by year-end, with the first coming as soon as July.
