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Global Economy

Record inflation in euro area eats up money

The inflation rate in the euro zone rose to a record level at the beginning of the year – it is the highest value since the introduction of the euro in 1999, according to the statistics office Eurostat.

Consumer prices in January were 5.1 percent higher than in the same month last year, according to a second estimate by Eurostat on Wednesday in Luxembourg. A first estimate was thus confirmed. In December, the rate was still 5.0 percent.

Compared to the previous month, consumer prices rose by 0.3 percent. Here, too, the first estimate was confirmed. Inflation was once again driven by an extremely sharp increase in energy prices, which rose by 28.8 percent compared to the same month last year. Food and beverages were 3.5 percent more expensive than a year ago.

Energy prices are the driver

Excluding energy, food and luxury goods, the price level rose by 2.3 percent in January. In this definition, inflation was declining, in December the so-called core rate was still 2.6 percent. Core inflation is considered by many economists to be a reliable measure of the inflation trend.

The medium-term inflation target of the European Central Bank (ECB) of two percent is currently being exceeded even more than before. The ECB still sees inflation as being driven by special factors. It was recently surprised by the persistently high rate of inflation. The European Central Bank is no longer ruling out a rate hike this year. A turnaround in interest rates is firmly expected on the financial markets this year. Discussions on how to proceed will then be held in March. A premature end to the bond purchases that support the economy is also being discussed.

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