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31 Aug 2021

Euro Zone sees a 10-year Inflation Surge; ECB in Question

The Index Today

Euro Zone is experiencing a 10-year high inflation surge, with prices still rising and causing concern. Consumer prices in the Euro-zone countries sharing the euro currency saw an increase of 3% this month, after an increase of 2.2% in July. This rate has exceeded the European Central Banks target of 2%.

One of the key factors that caused prices to go up is energy costs along with food costs. A large increase in the price of industrial goods was also recorded according to Eurostat.

Germany has one of the largest economies in the zone and is often known as a critic of the European Central Bank. The country is expecting to approach an inflation rate of 5% in the upcoming quarter. This will put immense pressure on the central bank to explain rising inflation and provide a solution.

The central bank has shed light upon factors related to the reopening of the economy after the pandemic which accounted for the inflation and price increase. It also said that the prices will become more moderate with a few months or early next year.

On the other hand, policymakers are confident that that the inflation target will remain below the target, pushing them to keep a flexible monetary policy to generate price pressures.

Central Bank policymakers have made it clear that they misunderstood and underestimated price pressures and keep pointing towards evidence for its loose policy. Core inflation has also seen a rise this month with fuel prices moving up to 1.6% from 0.9%. The bank aims to conduct a meeting on September 9th to decide on bond purchase programs for the upcoming quarter.

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