Eurozone Prices Rose in April, as Central Bank Seeks to Tame Inflation
Why It Matters: The goal is to control inflation while preventing a recession.
The split between the overall rate of inflation and underlying core inflation reflects the volatility from Russia’s invasion of Ukraine, which drove energy prices to record levels last year and has been the main factor behind high prices for food this year. It poses a challenge for policymakers who are looking to keep prices in check, while not stifling growth.
The International Monetary Fund recently said that taming inflation while avoiding a recession was Europe’s biggest challenge in the months to come, as the continent continues to digest the impact of the war in Ukraine on its economy.
Country by Country: Rates remained high in the Baltics, but dropped in Germany.
Across the countries that use the euro currency, inflation rates varied. The Baltic countries as well as Slovakia and Slovenia had double-digit price increases. Some of the larger economies with lower rates are dealing with pressure from workers seeking wage increases to keep up with the increased cost of living.
In Germany, Europe’s largest economy, inflation dropped to 7.6 percent, from 7.8 percent in March. Food prices remained stubbornly high, while government intervention to tame the inflated cost of energy began to take hold.
Workers in Germany’s public sector secured a deal to give 2.5 million employees a 5.5 percent pay increase starting next year. That deal is expected to set a precedent for other pay talks and could threaten the European Central Bank’s forecast that eurozone wage growth will peak this year.
In France, which has been plagued for months by waves of strikes over the government’s decision to raise the retirement age, inflation rose slightly in April, to 6.9 percent, from 6.7 percent in March, driven largely by energy, with the price of services also climbing a little.
In Spain, prices climbed to 3.8 percent in April, up from 3.1 percent the previous month as food costs climbed, even as energy prices that had soared to record levels last year continued to drop.
What’s Next: A decision by the European Central Bank.
The inflation data will influence the European Central Bank’s decision on whether to continue raising interest rates in an effort to bring down inflation. The bank’s Governing Council meets on Thursday and most analysts are estimating it will vote to increase rates by a quarter or a half percent. The bank raised its deposit rate to 3 percent last month, the highest since October 2008.