Inflation in the euro zone is at its highest level in 13 years as energy prices rise

Steam rises from the cooling towers of the Lippendorf power plant south of Leipzig.

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LONDON – Eurozone inflation peaked in 13 years in September as the bloc battled rising energy costs.

Headline inflation was 3.4% last month according to preliminary data from the European statistical office Eurostat. This was the highest level since September 2008, when inflation was 3.6%. It comes after German consumer prices rose 4.1% in September – their highest level in almost 30 years.

The increase was driven by rising energy prices, adding to policy makers’ concern. The front month gas price at the Dutch TTF hub, a European benchmark, has risen by almost 400% since the beginning of the year.

In addition, this streak of energy prices is unlikely to end anytime soon, as energy analysts warn that market nervousness is likely to linger through the winter.

France is the youngest country to step up measures to reduce costs for consumers. Prime Minister Jean Castex said Thursday the government would block further increases in natural gas and electricity tariffs. However, before these measures go into effect, gas prices for French consumers will rise by 12.6% from Friday.

Italy, Greece and Spain have also taken steps to counter the price increases.

In the interim?

Central bankers believe that the recent spikes in inflation are “temporary” and that price pressures will ease in 2022.

“We have revised many of our forecasts upwards in the last three quarters. Things have recovered faster, and that goes for growth, that goes for inflation and that goes for employment, ”European Central Bank President Christine Lagarde told CNBC in September.

“So in a way, it’s a package of good news because it means our economies are reacting.”

However, she added that energy price pressures would likely outlast other inflationary factors, particularly disruptions in supply chains.

“Energy will be a matter that will probably stay with us for a longer period of time. We also start from fossil energy sources,” said Lagarde.

However, some economists question whether the price pressures are temporary – and whether the central bank needs to adjust monetary policy more quickly.

“The recent surge will do very little to bridge the gap between the two inflation camps: one argues that the inflation drivers are temporary and that base effects will disappear or even reverse over the next year, and the other sees a broad risk one Accelerating inflation. We’re staying somewhere. ” in the middle, “said Carsten Brzeski, Global Head of Macro at ING Germany, in a statement on Thursday.

“Consistently higher inflation rates and a high risk that the ECB has actually entered a phase where its longer-term inflation projections are often too low compared to too high in the years leading up to the pandemic will put pressure on how” much monetary adjustment that the eurozone economy really needs, “he added

Analysts expect the ECB to provide further details on its monetary policy stance at a meeting in December. The pandemic emergency purchase program known as PEPP is slated to expire in March, and ECB observers expect purchases to decline in the last few months of the program.

“Even if inflation stays high longer, we still think that the [European Central] The bank will stick to its cautious approach, ”said Andrew Kenningham, Chief Economist for Europe at Capital Economics, in a statement on Thursday.

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