Inflation rate in the euro area: energy prices cause only a small increase

Today’s quick estimate for consumer price inflation in November showed an inflation rate of +1.5 per cent. In the previous month inflation had increased by +1.4. The inflation rate has, therefore, come somewhat nearer again to the actual consumer price inflation target of the European Central Bank (ECB) of “below but near to 2 per cent” but it is doubtful whether it will reach the target in the next few months and then remain there for some time in all member states.

The underlying trend in the EMU countries is currently a uniform one: higher prices for energy are causing a slight rise in the inflation rate. Price buoyancy in other goods and services sectors has been largely moderate. According to the initial estimates for November the inflation rate – measured in terms of the Harmonised Index of Consumer Prices (HICP), which is calculated according to a harmonized approach throughout Europe – stood at 1.8 per cent in Germany, +1.7 per cent in Spain, +1.3 per cent in France and +1.2 per cent in Italy. This shows that there is still a wide gap between the inflation rates at the country level.

The year-on-year oil price recovery, which drove consumer prices higher, was responsible for the bulk of the increase in November. The oil price increased a good 30 per cent on the previous year. Energy prices in the consumer goods basket rose in the same period by +4.7 per cent. Price buoyancy remained moderate as regards the other components in the basket of goods and services. Inflationary pressure within the domestic economy remains moderate despite the good economic situation. This is also reflected in the core rate, which remained unchanged at +0.9 per cent.

The volatility of consumer price inflation in the past few months and years has been caused to a great extent by external influences such as the energy price and fluctuations in food prices. Prices for other goods and services, which are mainly influenced by domestic economic effects, have charted no more than a slight rise for several months apart from a few seasonal influences. This can be inferred from the core rate, which remains at only 1 per cent. For the ECB it remains to be hoped that the increasingly entrenched economic upswing increasingly bolsters consumer demand and is gradually also reflected in the prices of other goods. But so far there is still no sign of this.

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