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Figures released on Friday show that inflation in the 19 countries that use the euro reached a record high, driven by rising food and energy costs.
Here is a more detailed look at the data reported by VOA:
What do the figures say?
According to Eurostat, the EU’s statistics office, consumer prices in the eurozone rose 5% in December from a year earlier.
Energy prices were the indicator that marked the largest increase over the past year by 26%, slightly lower than last month. Growth in food prices rose by 3.2%, in December from 2.2% in November. The price of other commodities rose at a faster rate of 2.9%.
However, price increases for services fell somewhat to 2.4%, suggesting that the Covid 19 Omicron variant reduced demand for holiday travel. Without potentially volatile elements such as food and energy, the eurozone core inflation rate remained unchanged at 2.6%.
Why is it important?
The latest figure breaks the record of 4.9% set in November and marks the highest level of inflation since the start of the euro currency record holdings in 1997, two years before its current use.
This means that everything from food items to other commodities and fuel is costing more as the economic recovery from the pandemic has increased energy demand and tightened global supply chains.
The figures show how inflation has emerged as one of the key issues facing politicians.
Inflation is increasing pressure on the European Central Bank to act as it has kept interest rates extremely low to stimulate the economy to recover from the pandemic. Omicron’s arrival has forced a review of any decision that could hamper economic growth, and analysts do not expect the European bank to raise rates until 2023.
Inflation is not just the EU’s problem. Consumer prices in the US have risen at the fastest pace in 39 years, and at the fastest pace in more than a decade in Britain. Inflation in Turkey reached 36% last month – the highest in 19 years – while Brazil saw it accelerate to more than 10%, the fastest pace in 18 years.
What do the experts think?
Some economists think that inflation in the eurozone will peak soon, if it has not already. A key factor is natural gas prices, “which have been extremely volatile in recent weeks and a dominant element of recent inflation growth,” says senior economist Bert Colijn of ING Bank.
Prices for natural gas and oil in futures markets suggest that energy inflation is likely to have peaked and may be easing, he said.
Now, “the question is how sharp the trend will be,” Mr Colijn said.
He and other economists predict that core inflation will ease but stay at or above 2% this year, giving the European Central Bank little room to act when it comes to an interest rate decision.
What are other countries doing?
Despite the spread of Omicron and the effects of uncertainty on the global economy, central banks have raised interest rates to fight rising inflation, or are taking steps in this direction.
Last month, the Bank of England became the first central bank of a large advanced economy, since the onset of the pandemic, to raise interest rates. The European Central Bank has taken a much more cautious approach, but has also decided to start phasing out some of its stimulus initiatives next year.
The US Federal Reserve is moving faster than Europe to tighten credit after consumer prices rose 6.8% in November last year.
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