Inflation in the euro zone rises in April – signal for higher interest rates

Inflation in the eurozone remains stubbornly high. Surprisingly, it even accelerated somewhat in April. The inflation rate rose from 6.9 to 7.0 percent, the said Statistics authority Eurostat with. Most experts had expected the inflation rate to remain unchanged in April.

This means that the fall in the inflation rate from its peak of 10.6 percent in October has stalled. The stubbornly high inflation rate is a signal to the European Central Bank (ECB) to raise interest rates further. The next time the ECB decides on the key interest rates in the euro zone is this Thursday. An interest rate step of 0.25 or another 0.5 percentage points is expected.

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In contrast to general inflation, core inflation excluding volatile energy and food prices fell slightly in April from 5.7 to 5.6 percent. It remains at the highest level since the introduction of the euro. The core rate of inflation is a measure of how far inflation has spread across the economy beyond the initial energy and food price shocks. The ECB is aiming for a core inflation rate of 2 percent.

The general rate of inflation continues to be largely determined by fluctuating energy prices. The fall in inflation also faltered as energy prices rose 2.5 percent yoy in April after falling yoy in March. Overall inflation in Europe and in Germany is being driven primarily by sharply rising food prices. Services and industrial goods are also becoming significantly more expensive.

There are large disparities in inflation within the euro zone, with a clear east-west divide. The highest inflation rates of the 20 euro countries are in Latvia at 15 percent and Slovakia at 14 percent. Inflation rates are lowest in small Luxembourg (2.7 percent), Belgium (3.3 percent) and Spain at 3.8 percent. In Germany, the inflation rate in the harmonized European calculation is slightly above the average at 7.6 percent. In France, which had comparatively low inflation rates for a long time, inflation in April was almost the euro zone average at 6.9 percent.

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