Dhe prices in the euro area as a whole continue to rise. As the European statistical office Eurostat announced on Tuesday after an initial estimate, the inflation rate in November was 4.9 percent. This is the highest value since the introduction of the euro. In October the rate was 4.1 percent, after 3.4 percent in September.
This means that the rate for the euro area is lower overall than in Germany, where it has now reached 5.2 percent according to the national calculation method. According to the European method of calculating the Harmonized Consumer Price Index (HICP), the German rate is already 6 percent. Inflation is now particularly high in the Baltic states, where it is sometimes more than 9 percent. In many of the larger euro countries, however, it is lower than in Germany. In France it rose to 3.4 percent, the highest level since 2008. Spain reported an increase to 5.6 percent for November. As in Germany, this is the highest level in almost 30 years.
Energy prices continue to drive inflation
Energy prices continue to be the drivers of inflation. But various other goods and services are also becoming more and more expensive. In part, factors in connection with the pandemic play a role that are likely to expire in the coming year. The temporary VAT reduction in Germany from 2020 is also reflected in the European inflation rate. It is also one of the reasons why Germany is currently in the upper midfield among the euro countries in terms of inflation. This factor should disappear mechanically from the inflation rate at the turn of the year. For German inflation, it should be around 1.2 percentage points, which would then have to drop out.
The ECB is reassuring on all channels
The European Central Bank (ECB) is meanwhile trying to calm down on all channels. ECB Executive Board member Isabel Schnabel appeared on several television programs on Monday with the message that the higher inflation rates were not going to last. ECB President Christine Lagarde made a similar statement in the Frankfurter Allgemeine Sonntagszeitung.
On December 16, the central bank plans to update its inflation forecasts and the future of its bond purchases. “We will adapt our pandemic emergency purchase program to the inflation dynamics, to our economic forecasts and to the changed health situation,” said ECB Vice President Luis de Guindos on Tuesday. “But we will not let the purchases run out, as the US Federal Reserve did.” ECB President Christine Lagarde had announced that the net purchases will end in March. “But they could be resumed if necessary,” emphasized de Guindos.
Despite everything, will inflation remain high next year?
According to some economists, the November inflation rate could represent the peak of the current wave of inflation. It is still a little uncertain how the rate will turn out in December, but it is estimated that it could be a little lower than in November. With the turn of the year, as I said, the rate should actually fall a little further. However, it is controversial among economists how much it will decline in the next year and whether we shouldn’t have to adjust to somewhat higher rates again. The Bundesbank continues to forecast rates of well over 3 percent for Germany for a long time to come next year. The high prices of raw materials and primary products are likely to exert pressure on inflation. In contrast, wages have so far increased rather moderately.
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