It’s official: inflation across the eurozone has hit its highest level in a decade.
Consumer prices jumped by 3% in the year to August, up from 2.2% in July. That’s the highest rate since late 2011, and sharply over the European Central Bank’s 2% target.
Statistics body Eurostat’s final data, which confirms its ‘flash’ estimate, shows that energy costs are continuing to drive up the cost of living.
On a monthly basis, prices rose by 0.4%.
Energy prices saw the biggest surge, up 15.4% over the last year, while unprocessed food prices are up 3% per year. Industrial goods inflation jumped to 2.6%.
Across the region, Estonia, Lithuania and Poland all saw the highest inflation rates, at 5% per year.
The ECB has argued that the jump in inflation is temporary, due to the pandemic. It predicted last week that inflation will fall back over the next couple of years, away from its target.
But last night, the Financial Times reported that the ECB expects to hit its 2% inflation target by 2025, according to unpublished internal models that suggest it is on course to raise interest rates in just over two years.
This would be at least a year earlier than most economists expect the ECB to raise its deposit rate from a record low of minus 0.5 %.
According to the FT, ECB chief economist Philip Lane told economists at German banks that its “medium-term reference scenario” (usually unpublished), shows inflation rebounding to 2 per cent soon after the end of its three-year forecast period.
The ECB has disputed the story, calling it inaccurate, and insisting:
“Mr Lane didn’t say in any conversation with analysts that the euro area will reach 2 per cent inflation soon after the end of the ECB’s projection horizon.”