Inflation spikes to annual 3% in Europe as fuel prices go up; Germany sees 13-year high

Owing to a steep increase in fuel prices, the 19 countries using the euro currency witnessed an inflation spike to an annual 3% in August, registering an up from 2.2% in July. The European Union statistics agency Eurostat released the higher inflation figures on August 31 while reflecting other transitory factors. These included the timing of summer retail sales in France and Italy, the expiration of German tax breaks on retail purchases. Eurostat also noted that the increase in oil prices after the slump, which was witnessed a year ago during the COVID-19 pandemic, contributed to a 15.6% increase in energy costs.

Hence, the inflation spike was mainly driven by one-time factors that lowered prices just a year ago. But, as per The Associated Press, the increase could still trigger a debate if recently higher inflation is just transitory or likely to stay for a more extended period. Leaving out volatile fuel and food, the core inflation, according to Eurostat figures, was 1.6%. 

Meanwhile, the economists have reportedly cited a raft of additional reasons for the uptick witnessed in prices in Europe. Even hotels and other tourist businesses have increased the prices after the COVID-19 lockdowns ended. Notably, the supply chain disruptions due to restrictions across the globe and higher raw materials prices have led to the hike in prices for producers of goods as economic activity eventually ramped up. 

European Central Bank might not attempt to counter inflation

As per the report, because most of the factors that caused inflation spike are ‘temporary’, economists do not expect the European Central Bank to attempt to counter inflation by curtailing its stimulus programs or raising interest rates. The latest projections by the central bank from June witness inflation hitting 1.9% for all of 2021 and falling to 1.5% in 2022. Reportedly the European Central Bank’s governing council will be meeting next on September 9 to review the policy stance. The higher inflation figure came after an extended period of low inflation that fell short of ECB’s goal of below but close to 2%. As per the report, the European Central Bank only recently rendered the goal to allow for brief periods of inflation above 2%.

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