Eurozone prices exceed ECB target for the first time since 2018

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Eurozone inflation rose to 2% in May. This is the first time in more than two years that the interest rate has exceeded the ECB’s target, complicating next week’s decision on whether to maintain ultra-loose monetary policy.

Before the 1.6% jump in April, consumer prices in the U.S. have grown faster and have recently reached 4.2%. The appreciation of the euro zone may exacerbate investor concerns that the central bank will speed up Lopsided One of the large-scale monetary stimulus measures introduced last year in response to the coronavirus pandemic.

The European Central Bank’s Management Committee will meet next week to decide whether to adjust its monetary policy — including the recent acceleration of bond purchases — in response to signs of easing economic activity and rising prices following the Covid-19 blockade.

The euro zone inflation rate rebounded after a few months below zero last year, prompting most economists to predict that this year’s inflation rate will exceed the European Central Bank’s target of less than but close to 2%.

However, several European Central Bank policy makers, including the President of the European Central Bank, Christine Lagarde, said that the recent surge in inflation is Only a temporary phenomenon, Driven by a one-off effect, and it is predicted that it will subside next year. They believe that this means that the central bank’s policy should remain highly accommodative.

The 13.1% year-on-year increase in energy prices in the Eurozone was the main factor that pushed the 19-country single currency zone consumer price coordination index slightly higher than expected to the highest level since October 2018. Eurostat.

Excluding the volatile energy, food, alcohol and tobacco prices, core inflation rose modestly from the overall figure, rising from 0.7% in April to 0.9% in May. Prices of services in the euro zone affected by the lockdown caused by the coronavirus rose by 1.1%.

Most economists believe that the euro zone is unlikely to have a period of persistently higher than target inflation, because during the pandemic, millions of people lose their jobs, take vacations or leave the labor market.

The European Central Bank estimates that wage growth in the Eurozone slowed further to 1.4% in the first quarter.

Commerzbank economist Christoph Weil said: “The euro zone recession triggered by the new crown epidemic will continue to inhibit wage growth in 2021.”

Eurostat said the EU unemployment rate fell to 8% in April, the lowest level in nine months. The number of unemployed fell to 15.4 million, 134,000 fewer than in March, but still nearly 1.3 million higher than in April 2020.

Capital Economics macro economist Andrew Kenningham said that although hiring is expected to increase “substantially” as the lockdown is lifted, “companies will be able to take advantage of workers on leave, so we don’t expect this year’s unemployment rate to increase.” Decline rapidly”.

German Economy Minister Peter Altmaier said he was watching the surge in inflation “very cautiously” and attributed much of it to the sharp rise in timber, semiconductor and oil prices.

He said: “Due to the pandemic and the rapid growth of economic activity, many commodities and products have become scarce.” “What is the real problem? [level of inflation] We should yearn for. “

A closely watched business survey released on Tuesday showed that supply-side inflationary pressures are building, which shows that Eurozone manufacturers are facing unprecedented product shortages and price increases, which limit their ability to meet growing global demand.

Eurozone at IHS Markit Manufacturing Purchasing Managers Index It was found that “Average input costs have risen sharply again… Due to widespread product shortages, they have reached unprecedented levels.” It stated that the factory “increased its own expenses at the fastest rate with more than 18 years of data availability, thereby taking advantage of the increased pricing power.”

In addition, according to a survey conducted by the Ifo Institute in Munich, 44% of German construction companies have problems purchasing materials in a timely manner. “Timber prices have almost skyrocketed in recent months, and sawmills can’t keep up,” said Felix Leiss of Ifo.

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