Euro-zone prices rose in April as the central bank tries to tame inflation
Why It Matters: The goal is to control inflation while avoiding a recession.
The split between headline inflation and underlying core inflation reflects the volatility of the Russian invasion of Ukraine, which pushed energy prices to record highs last year and was the main reason for high food prices this year. This poses a challenge for policymakers trying to keep prices under control without stifling growth.
The International Monetary Fund recently said that curbing inflation while avoiding a recession is Europe’s biggest challenge in the coming months as the continent continues to digest the impact of the war in Ukraine on its economy.
Country by country: Rates remained high in the Baltics but fell in Germany.
In the countries using the euro currency, inflation rates have been different. The Baltic countries as well as Slovakia and Slovenia recorded double-digit price increases. Some of the larger economies with lower interest rates are facing pressure from workers seeking wage increases to keep up with the rise in the cost of living.
In Germany, Europe’s largest economy, inflation fell to 7.6 percent from 7.8 percent in March. Food prices remained stubbornly high while government intervention to curb inflated energy costs began to take hold.
Public sector workers in Germany agreed to give 2.5 million workers a 5.5 percent pay rise starting next year. This deal is likely to set a precedent for other wage negotiations and could threaten the European Central Bank’s forecast that euro-zone wage growth will peak this year.
In France, which has been plagued for months by waves of strikes over the government’s decision to raise the retirement age, inflation edged up to 6.9 percent in April from 6.7 percent in March, mainly driven by energy but also by prices climb a little for services.
In Spain, prices rose to 3.8 percent in April from 3.1 percent in the previous month as food costs rose, although energy prices, which rose to record levels last year, fell further.
What’s Next: A decision by the European Central Bank.
The inflation data will influence the European Central Bank’s decision on whether to raise interest rates further in order to bring down inflation. The bank’s Governing Council meets on Thursday and most analysts estimate it will vote in favor of a quarter or half percent rate hike. The bank raised its deposit rate to 3 percent last month, the highest since October 2008.