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Falling prices in the eurozone rose to 4.9 percent in November, a record since the single currency was formed more than two decades ago, prompting policymakers and economists to warn that inflation could continue longer than expected.
Driven by rising electricity prices, the rise in eurozone prices – as measured by the Consumer Price Index – exceeded the 4.5 percent expected average by economists surveyed by Reuters. The rise should force the European Central Bank to reducing its cheap power.
Some traders said the ECB appeared to be more relaxed with regard to rising prices. “It could be a dream come true for the ECB President [Christine] When Lagarde announces that inflation will not go away – it is already over and it is difficult to follow the point that it will end soon, “said Charles Hepworth, chief financial officer at GAM Investments.
Jens Weidmann, the outgoing president of the Bundesbank, on Tuesday warned the ECB to “beware of any pressure to be more lenient than the price demands”.
German central bank comments came as a rise in German consumer prices by 6 percent, a sharp increase of nearly 30 years, sparking political upheaval. The incoming German finance minister Christian Lindner wrote on Twitter that “rising prices are justified,” he added, “in terms of inflation, we will see how it goes after the epidemic.”
The ECB has sought to address the issue of inflation, citing rising inflation rates, closing capabilities and German tax revenues disappearing next year.
Although the rise in coronavirus cases and the spread of a new strain lead to economic uncertainty, there are indications that ECB officials are questioning whether inflation is falling as quickly as they think.
“By 2022, the bottles could be longer than expected,” Luis de Guindos, the ECB’s vice president, said in an interview with Les Echos published Tuesday. “There is a risk that prices will not go down as fast as we predicted.”
The rise in electricity prices by 27.4 percent in November since last year was the biggest driver of inflation in 19 bloc countries. But food, labor and commodity prices all rose faster than the ECB demanded 2 percent.
The fall in commodity prices, which the ECB is monitoring as a result of the crisis, which eliminates waste energy, food, alcohol and tobacco, rose to 2.6 percent, up from 2 percent last month. Another rise in commodity prices was due to a decrease in package holidays in the inflation basket indicating a decrease in tourism during the epidemic.
Luigi Speranza, a global economist at BNP Paribas, said: “It is difficult to ignore statistics like the ones we see today, which is why there has been a need for compensation for higher wages for workers.”
Economists are struggling to see how inflation affects an increase in the incidence of coronavirus cases and the spread of Omicron range in Europe.
Jack Allen-Reynolds, a European economist at Capital Economics, said the change could reduce inflation as a result of lower oil prices but could also increase commodity prices by increasing the impact of the epidemic. He predicted that eurozone prices would fall below 2 percent of the ECB by the end of 2022.
ECB will release new inflation forecasts on December 16 and it is highly anticipated to add them from the results released in September, when it predicted a fall from 2.2% this year to 1.7% next year and 1.5% in 2023.
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