In yet another sign that mounting inflation is becoming pronounced around the globe, for the first time since 2018, price levels in the eurozone finally surpassed the European Central Bank’s target.
According to data published by Eurostat, consumer prices rose an annualized 2% in May, following an increase of 1.6% in the previous month. The jump in inflation was largely driven by price increases for energy products, which surged 13.1% year-over year. Core inflation, which excludes price volatilities of energy, food, alcohol and tobacco, increased from 0.7% in April to 0.9% last month. Similarly, the bloc’s service sector— which up until now has been struggling amid widespread lockdowns— has roared back to life, with prices rising 1.1%.
However, with the eurozone noting a strong comeback, manufacturing across the 19-country single currency area is showing signs of supply-side inflationary pressures. Despite remaining relatively robust in face of Covid-19 restrictions, IHS Markit found that eurozone manufacturers faced an unprecedented level of supply-chain disruptions, particularly product shortages and sharp increases in input prices. This has prompted factories to pass on the higher prices to consumers at the fastest rate in over 18 years.
In response to the rising price pressures, the European Central Bank reiterated its stance that any such inflationary increases will be transitory, and that premature withdrawal of monetary support could be detrimental to the trajectory of the bloc’s economic recovery. Nonetheless, the ECB’s governing council is expected to meet next week to determine if any monetary adjustments need to be made, particularly with respect to its recently-accelerated pace of bond purchases.
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Information for this briefing was found via Eurostat and IHS Markit. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
