Inflation in the Euro Area rose to a decade high of 3 percent in August, increasing pressure on the European Central Bank (ECB) to slow down its liquidity measures amid the region’s recent economic rebound.
Eurozone’s inflation rate exceeded most economists’ expectations, jumping from a year-on-year price increase of 2.2 percent in July to 3 percent in August.
The increase was the sharpest since November 2011, and well above the ECB’s target inflation of 2 percent.
Prices have been rising due to an increase in consumer and business morale as anti-virus protocols were lifted and vaccination rollout accelerated.
Higher energy costs in August at 15.4 percent also largely drove inflation, along with signs of shortages in essential manufacturing components.
After possibly intensifying in the next few months, most economists expect inflation to fall again next year as demand patterns and supply chain issues return to pre-pandemic levels.
The inflation shock prompted more pressure on the ECB to slow down its “crisis mode” stimulus program and return to pre-pandemic discipline.
If inflation and growth improved as expected in the latter half of the year, Dutch central bank governor Klaas Knot said that the Euro Area can “begin to gradually phase out pandemic emergency purchases and end them as foreseen in March 2022.”
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