LONDON — Consumer prices across the 19 European Union countries that use the euro currency have spiked to the highest level in more than 13 years on the back of soaring energy prices and pent-up demand during the pandemic recovery, official figures showed today.
Eurostat, the European Union’s statistics agency, said inflation across the bloc rose to 4.1% in the year through October, up from September’s equivalent rate of 3.4%. The increase was the highest since July 2008, when inflation was also 4.1%.
Inflation in the 19 countries, like elsewhere in the world, has been spiking in recent months as the global economy rebounds from the coronavirus pandemic. The recovery has not been normal, with businesses and consumers worldwide feeling the pinch of supply chain backups and labor shortages that have helped lead to rising prices on everything from food to toys heading into the holiday shopping season.
But the most dramatic effect on prices from lockdown restrictions easing and global demand picking up has been soaring energy costs, which have raised utility bills and threatened the economic recovery.
The latest spike in consumer prices is likely to pressure the European Central Bank to accelerate moves to end its pandemic stimulus measures, with inflation running at double its target of 2%. Central banks usually raise interest rates and dial back stimulus efforts to combat rising prices, but they sometimes hold off if they think it’s linked to temporary factors.
The European Central Bank said Thursday that much of the surge in prices is tied to comparisons with low prices during the pandemic, recently higher fuel costs and demand outpacing supply as the economy reopens. Because bank officials said they expected all three to be temporary, they kept their pandemic support, including a 1.85 trillion euro ($2.14 trillion) bond purchase program, in place through March.
“We agree with the ECB that the forces pushing inflation up should fade next year,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics. “But given the uncertainty around how long supply problems will persist, the risks are clearly skewed towards a longer-lasting overshoot of 2%.”
Friday’s figures from Eurostat indicated that the price increase is starting to filter down through the eurozone economy. The core rate of inflation — which strips out the volatile items of alcohol, energy, food and tobacco — reached 2.1% in October, up from the previous month’s 1.9%.
Separately, Eurostat said growth in the countries using the euro rose by 2.2% in the third quarter of the year, a tad higher from the previous quarter’s 2.1%. There have been mixed updates among the countries that have published quarterly figures, with France posting strong 3% growth and Germany, Europe’s biggest economy, underperforming with only 1.8%.
Though Eurostat did not provide details on the makeup of growth within eurozone economies, it’s clear that the end of lockdown restrictions has helped shore up the services sector, such as restaurants and bars.
Looking ahead, there are concerns growth will start to cool as economies get closer to the level of output they were at before the pandemic struck last year and rising inflation limits both household spending power and industrial activity. Shortages of certain products because of worldwide supply chain issues are also set to hobble activity, as could another resurgence of the virus during the winter.
“The eurozone economy continued to bounce back in the third quarter, but headwinds to growth are now building,” said Tej Parikh, a director at Fitch Ratings.