Eurozone prices exceed the ECB’s target for the first time since 2018

Eurozone inflation rose to 2% in May, as the rate exceeded the European Central Bank’s target for the first time in more than two years, making it difficult to decide whether to maintain an ultra-loose monetary policy next week.

The jump from 1.6 percent in April in US consumer price growth accelerated even faster, as it recently hit 4.2 percent. Eurozone growth is likely to accelerate investor anxiety that will speed up central banks wind last year a broad monetary stimulus was launched in response to the coronavirus pandemic.

The ECB’s governing council will meet next week to decide whether to adjust its monetary policy – including the rapid pace of recent bond buying – to respond to signs of economic activity and rising prices as Covid-19’s blockade eases.

Eurozone inflation was revived after a few months below zero last year, and most economists will predict a rate that will exceed the ECB’s percentage this year, but close to 2 percent.

However, several ECB officials, including President Christine Lagarde, have said it is the latest rise in inflation only a temporary phenomenon, driven by point effects, and are projected to disappear next year. That said, this means that central bank policies must continue to be very appropriate.

The 13.1% year-on-year rise in energy prices in the eurozone was the main factor in the single-currency area of ​​19 countries, which slightly exceeded the harmonized consumer price index to its highest level since October 2018. Eurostat.

Headline inflation, excluding the most volatile energy, food, alcohol and tobacco prices, rose slightly lower than the main figure, rising from 0.7 per cent in April to 0.9 per cent in May. Prices in the blockchain services sector, which have been weighed down by coronavirus-induced blockages, rose 1.1 percent.

Most economists believe that a sustainable inflation period that is unlikely to last in the eurozone is unlikely because millions of people have lost their jobs, been put on the forulough or left workers in a pandemic.

According to the ECB, wage growth in the eurozone weakened further in the first quarter to 1.4 percent.

Economist Christoph Weil of Commerzbank said: “The recession in the eurozone caused by the pandemic to the crown will continue to slow wage growth in 2021.”

Eurostat said unemployment in the bloc fell to 8 per cent in April, the lowest level in nine months. The number of unemployed fell to 15.4 million, 134,000 less than in March, but still almost 1.3 million more than in April 2020.

According to Andrew Kenningham, an economist at Capital Economics, hiring is expected to increase “significantly” as closures rise, “companies will be able to work, so we don’t expect the unemployment rate to drop rapidly this year”.

Peter Altmaier, the German economy minister, said the rise in inflation was being followed “carefully” and that much of it was attributed to large rises in the price of wood, semiconductors and oil.

“As a result of the pandemic and very rapid economic activity, many goods and products are in short supply,” he said. “The real question is what [level of inflation] we should be trying. “

As a sign of rising supply inflation pressures, a close business survey released on Tuesday said eurozone manufacturers were experiencing unprecedented product shortages and rising prices, limiting their ability to cope with rising global demand.

IHS Markit Eurozone manufacturing purchasing managers index found that “average revenue costs rose again significantly… reaching an unprecedented level in line with widespread product shortages.” Factories “took advantage of better price potential by raising the fastest rate of data availability over 18 years.”

Similarly, 44% of German construction companies have problems supplying materials on time, according to a survey by the Ifo Institute in Munich. “The price of wood has almost exploded in recent months, and sawmills can’t keep up,” Felix Leiss told Ifo.