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Fresh inflation record dampens EU outlook

By CHEN WEIHUA | China Daily | Updated: 2022-11-02 07:12

A girl receives free breakfast at a primary school in Heemskerk, the Netherlands, last week. Breakfast is offered at 500 primary schools to prevent children from starting the school day with an empty stomach because inflation has left their parents short of cash. [Photo/Agencies]

Energy prices take most of the blame for pushing rate above 10% in eurozone

Inflation in the 19-member eurozone hit a record 10.7 percent in October, dampening the economic growth prospects among nations that serve as the engine room of the European Union.

The figure is higher than the 9.9 percent recorded in September, according to a preliminary report on Monday by Eurostat, the EU's statistics agency.

Eurostat attributed the main components of the grim report to energy prices, which jumped 41.9 percent from the previous month, following a 40.7 percent rise in September. Food, alcohol and tobacco rose 13.1 percent while non-energy industrial goods increased 6 percent and services moved up 4.4 percent.

The three Baltic states are among those nations hardest hit, with inflation remaining above 20 percent, topped by Estonia with a jump of 22.4 percent.

In Belgium, the annual inflation rate rose to 12.27 percent in October, the highest since June 1975, and many economists see no signs of an easing until the start of next year.

Eurostat on Monday also announced its estimates of GDP growth. The agency expects expansion of just 0.2 percent in both the eurozone and the 27-member EU in the third quarter of this year from the previous quarter.

Extended slowdown

The report was released just days after the European Central Bank, whose target is to keep inflation under 2 percent, hiked interest rates by 0.75 percentage point last Thursday. The ECB also promised further rises and forecast an extended economic slowdown in the eurozone.

"Inflation remains far too high and will stay above the target for an extended period," the bank said in a statement.

"In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation."

ECB President Christine Lagarde warned that eurozone economic activity likely "slowed significantly in the third quarter of the year and we expect a further weakening in the remainder of this year and beginning of next year".

Many experts expect the eurozone — which comprises nations that use the euro — to go into recession over the winter. An ECB survey last week showed that participants forecast growth to be negative between the third quarter of this year and the first quarter of next year.

In its latest World Economic Outlook, the International Monetary Fund estimates that the eurozone will grow by 3.1 percent in 2022 but only 0.5 percent in 2023, when major economies Germany and Italy are expected to post negative growth.

"There are first signs of stagflation to be seen," ECB Governing Council member Olli Rehn, who also heads the Bank of Finland, told Finnish media on Monday. Europe experienced its last bout of stagflation, a prolonged period of slow growth and high inflation, in the 1970s.

"Inflation still rising due to the fact that monetary policy is actually still expansionary (real estate is very negative) and recession hasn't hit as hard yet," Vania Stavrakeva, an assistant professor of economics at the London School of Economics, said in a tweet on Monday.

Also on Monday, Robin Brooks, chief economist at the Institute of International Finance, said in a tweet: "The ECB is a central bank where the hawks don't act like hawks and the doves aren't doves."

He said the doves are not pushing back harder against rate hikes because they know they need ECB support for their bond markets, so they better not complain too loudly.

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