‘Eurozone enduring fastest inflation’

Our Correspondent
Sunday, Nov 28, 2021

ISLAMABAD: The Eurozone has witnessed the highest ever inflationary pressures in the aftermath of the COVID-19 pandemic amid rising demands and disrupted supplies first time since the placement of a single currency almost more than two decades back.

According to Bloomberg, any acceleration at all would mark the highest rate ever. Core prices are seen increasing at the fastest pace since 2002. The Eurozone is now enduring the fastest inflation since the single currency was founded at the end of the 20th century, economists say.

According to Bloomberg, consumer prices in the 19-country region rose 4.5% in November, according to the median of 40 estimates in a Bloomberg survey before the statistics due Tuesday. Every respondent predicts an acceleration from last month’s level of 4.1%, which already matched the fastest since the 2008 financial crisis.

In Germany, the region’s biggest economy, the cost-of-living squeeze is arguably even greater, with the median estimate for inflation data on Monday now at 5.5%. The Bundesbank warned this week that the outcome there could even reach close to 6%. Price Pressures Inflation numbers are set to show the fastest rate in the euro’s history. Such unprecedented price spikes, reflecting surging energy costs and global supply bottlenecks, will add to the communication challenge of the European Central Bank, whose policymakers soon face a major decision on the future of stimulus. They insist this bout of inflation is transitory while underlying pressures remain too weak to be self-sustaining.

“We don’t expect it to alter the European Central Bank’s assessment of underlying price pressures before its December meeting,” Maeva Cousin, an economist at Bloomberg Economics, said in a report Friday previewing the data. “Underlying pressures are likely to remain more stable.” A core measure of prices that strips out volatile items such as energy and food is also jumping. The outcome of 2.3% median prediction for that would be the highest since 2002.

The highest prediction for headline Eurozone inflation in the survey is by Capital Economics, whose economists expect 4.7%. The lowest is 4.2%, anticipated by six forecasters including Bank of America.

The annual inflation rate in the US surged to 6.2% in October of 2021, the highest since November of 1990 and above forecasts of 5.8%. Upward pressure was broad-based, with energy costs recording the biggest gain (30% vs 24.8% in September), namely gasoline (49.6%).

Inflation also increased for shelter (3.5% vs 3.2%); food (5.3% vs 4.6%, the highest since January of 2009), namely food at home (5.4% vs 4.5%); new vehicles (9.8% vs 8.7%); used cars and trucks (26.4% percent vs 24.4%); transportation services (4.5% vs 4.4%); apparel (4.3% vs 3.4%); and medical care services (1.7% vs 0.9%). The monthly rate increased to 0.9% from 0.4% in September, also higher than forecasts of 0.6%, boosted by higher cost of energy, shelter, food, used cars and trucks, and new vehicles.

Canada’s headline inflation rate rose to 4.7% in October of 2021 from 4.4% in the prior month, in line with market expectations. It was the highest inflation rate since February of 2003, amid supply chain issues and low base year effects. Prices rose in all eight major components, with the strongest pressure coming from transportation (10.1% vs 9.1% in September), the steepest increase since March 2003, underpinned by energy costs (25.5%). Also, significant contributions came from prices of shelter (4.8%, the same as in September) and food (3.8% vs 3.9%), as a combination of labor shortages, supply chain issues, and higher feed prices pushed costs of meat products sharply higher (9.9%).

Excluding energy, the CPI rose 3.3%, the same pace as in the previous month. On a monthly basis, consumer prices went up 0.7%, quickening from a 0.2% gain in September, as expected.

These rising inflation pressures around the globe have posed serious risks for low- and fixed-income groups in many parts of the globe including South Asian states. However, the inflation remained manageable in oil-exporting countries especially in UAE, Saudi Arabia, and other Gulf regional countries. Even prices surged in China by witnessing unprecedented hikes as the Producer Price Index jumped up by 13.5% in October from a year ago, accelerating from September's 10.7%.

Inflation in the GCC region is expected to remain manageable this year, albeit higher than in 2019 and 2020, with momentum remaining relatively flat in the coming months with both inflationary and disinflationary forces waning gradually, say economists.

It forecast Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE to stay at 0.8 percent, 2.2 percent, three percent, 0.8 percent, 3.6 percent, and 0.7 percent, respectively, in 2021.

Oxford Economics said in its report on regional economies the region will continue to endure disinflationary pressure in the near term despite a big spike in food prices over the past year.

However, a weak outlook for domestic currencies, which are pegged to the US dollar, will continue to stoke inflationary pressures stemming from climbing global food and shipping costs. Transport price inflation is also set to edge up.

The rising inflationary pressures also persist in the South Asian Region as Pakistan tops with an annual inflation rate of 9.7 percent for the fiscal year 2020, followed by India at 6.6 percent, Sri Lanka at 6.2 percent.