Inflation in the euro zone sets a new record

It’s a first. Inflation is in double digits. In September, consumer prices in the euro zone rose again. Over one year, the inflation rate rose to 10% after 9.1% the previous month, according to preliminary figures published Friday by Eurostat.

Economists polled by Reuters on average were forecasting a level of 9.7%. The pressure on prices obviously concerns energy and food. The rise in energy prices should thus reach 40.8% after 38.6% in August. Those of food grew by 11.8% after 10.6% the month before.

Nevertheless, the pressure is general since inflation, excluding energy and unprocessed food, an indicator closely monitored by the European Central Bank (ECB), has increased more than expected. It stood at 6.1% against 5.5% in August. And if we also exclude alcohol and tobacco, the rise in prices over one year comes out at 4.8% after +4.3%.

Agricultural prices are skidding

In another analysis, Eurostat shows that the Russian invasion of Ukraine has significantly disrupted global agricultural markets in 2022 and pushed up sharp price increases for key agricultural products and inputs. “Between the second quarter of 2021 and the second quarter of 2022, the average price of goods and services currently consumed in agriculture jumped by 36% […] The prices of fertilizers and soil improvers (+116%) and energy and lubricants (+61%) have experienced considerable increases,” the agency points out.

Baltic countries above 20%

Not all countries are in the same boat when it comes to headline inflation. The Baltic countries are in turmoil with inflation levels above 20%. With 24.2%, Estonia suffers the most. The Netherlands, the fifth largest economy in the euro zone, saw its inflation jump to the highest level in decades. Under the effect of higher energy prices, the price index soared to 17.1% in September after 13.7% in August. Over one year, energy prices in the country have exploded by 114%. France, under the effect of the tariff shield on gas and electricity prices, recorded a slowdown in its inflation to 6.2% (harmonized index) over the same period. A slowdown which will undoubtedly be temporary according to economists while in Germany the rise in prices reached, over the same period, 10.9%, the highest level since 1951.

ECB rate hike likely

The figures for September are “horrible in all areas, all major categories experiencing an acceleration in inflation” comments in a note Bert Colijn, ING’s economist for the euro zone. In his eyes, the ECB will only be able to raise its key rates again in October and will raise it with an additional 75 basis points. “As the ECB is currently entirely focused on the inflation figures, its monetary policy meeting at the end of October should lead to a further 75 basis point increase in its key rates”, also estimates Ricardo Amaro, economist at Oxford Economics. This is all the more likely in view of the evolution of unemployment where “the rate is unchanged in the euro zone and in Germany and slightly down in Italy”, he says.