Eurozone Inflation narrowly down

According to the European Commission, inflation levels in Europe have eased as winter draws to a close, although some of the largest economies in the Eurozone have reported troubling increases. The annual rate of consumer prices in the 20 countries that use the euro as their currency rose by 8.5 percent in February, down slightly from January’s rate of 8.6 percent. Despite the decline since reaching a peak of 10.6 percent in October, core inflation rose to a record high of 5.6 percent in February from 5.3 percent, when excluding erratic categories such as food and energy.

France, Spain, and Germany are among the largest economies that reported significant inflation increases in February. France experienced its highest inflation point in over two decades with an inflation rate of 7.2 percent, while Spain grew at an annual rate of 6.1 percent. Meanwhile, Germany, the largest economy in Europe, reported an annual rate of 9.3 percent.

Inflation was driven by higher prices for alcohol, tobacco, services, and food, which remained high in Europe. The war between Russia and Ukraine has disrupted fertiliser production and squeezed the global food supply, causing anxiety about the food supply. Devastating droughts in Europe, China, the Horn of Africa, and the United States caused by climate change have also contributed to smaller harvests and higher food prices. Even Belgium, where inflation dropped to an annual rate of 5.5 percent, among the lowest in the Eurozone, saw a rise in food prices.

Some of the inflationary pressure can be traced to governments’ pullback from policies like price controls and subsidies that blunted the impact of rising energy prices on households. In France, electricity prices for some consumers were allowed to rise in February after being frozen. A bounce-back in Chinese production may also be nudging prices up. China’s mammoth manufacturing capacity, combined with its starring role in the world’s supply chain, gives it an outsize impact on the global economy by, for example, driving up the demand for energy.

Although inflation is well below its peak in October, it is still far above the central bank’s goal of 2 percent. Christine Lagarde, the European Central Bank’s president, has said that a half-point rate increase this month is all but certain, and the bank will continue to raise rates if necessary to meet inflation goals.