Energy prices cause record inflation in euro area

Status: 01/20/2022 1:06 p.m

Currency devaluation in the euro area reached a record high at the end of 2021. In December, the inflation rate rose by five percent compared to the previous year. Meanwhile, an important inflation harbinger continues to send SOS.

The inflation rate in the euro area climbed to 5.0 percent in December, as reported by the European statistical authority Eurostat in Luxembourg. This confirmed her first estimate. The inflation rate at the end of the year was higher than it had been since the introduction of the euro in 1997. In November, the inflation rate was still 4.9 percent – this was also a record.

Clearly above the ECB target

In December, the currency devaluation was fueled again by an extremely sharp increase in energy prices, which rose by almost 26 percent compared to the same month last year. Food and beverages cost 3.2 percent more than a year ago. Excluding energy, food and luxury goods, the price level rose by 2.6 percent. This so-called core rate is regarded by many economists as a reliable measure of the inflation trend.

But the core rate is also well above the medium-term inflation target of the European Central Bank (ECB) of around two percent. While other major central banks such as the US Federal Reserve or the Bank of England have already announced or already implemented interest rate hikes to combat inflation, the ECB wants to keep its feet still for the time being.

Producer prices with record increase

The trend towards rising inflation rates is likely to continue for the time being. This is indicated by the development of producer prices. In Germany, the largest European economy, these rose by 24.2 percent in December compared to the previous year and were thus stronger than ever before.

The producer prices show the price development for products produced and sold in Germany, for example by industry. They also affect consumer prices at a later stage in the economic process.

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