Belgium, (Brussels Morning Newspaper) Eurozone inflation rose faster than expected in October, reaching 10.7%.Economists who took part in a Reuters poll expected inflation to reach 10.2%, up from roughly 9.9% in September, according to Reuters reporting on Tuesday.
In contrast, European Central Bank (ECB)’s inflation target stands at 2%, with analysts expecting the eurozone central bank to continue upping interest rates in an effort to rein in inflation.
At the same time, the eurozone economy is slowing down, with Eurostat estimating that GDP in the eurozone grew 0.2% in Q3 compared to Q2, or 2.1% on the annual level.
Commerzbank pointed out “today’s data increase the likelihood that the ECB will raise its key interest rates again by 75 basis points in December.”
According to some economists, positive growth rates are leaving room for the ECB to keep tightening its monetary policy. They predicted that the ECB would be reluctant to continue increasing interest rates during an expected recession.
Ken Wattret, an economist at S&P Global Market Intelligence, noted “we continue to forecast a round of 50 bp rate hikes in December, followed by further 25 bp hikes at the subsequent meeting in February.”
In the last three months, the ECB upped its rates by 200 basis points and announced additional hikes in the near future.
Lagarde announces more hikes
In an interview released on Tuesday, ECB President Christine Lagarde announced plans to continue increasing interest rates.
“Our mandate is price stability and we have to deliver on that using all the tools we have available,” she stated and added “we are determined to do what is necessary to bring inflation back to our 2% target.”
“The destination is clear and we are not there yet,” she pointed out and reiterated that the ECB is preparing additional hikes. “The longer inflation stays at such high levels, the greater the risk that it spreads throughout the economy,” she concluded.
Inflation excluding energy and unprocessed food continued to pick up pace in October, rising from 6% in September to 6.4% and showing that inflation has spilled over from the energy sector.
As inflation continues to rise, businesses and citizens are increasingly likely to adjust their economic behaviour as persistent growth of prices erodes their trust in the ECB’s ability to keep them stable.