Also in the euro zone, consumer prices rose sharply in August, by 3%, as the European statistical agency Eurostat announced in an estimate on Tuesday. The Federal Statistical Office for Germany only reported an inflation rate of 3.9% on Monday. This was the highest value since 1993. As Germany, as the largest economy in the monetary union, has the largest weight in Eurostat’s calculation, the increase in the inflation rate of the euro was not unexpected. Experts expected 2.7%, but now the value has turned out to be higher. Prices have also increased in other eurozone countries such as Spain, the Netherlands and the Baltic States. The cost of energy in the euro area increased by 15.4%.
The high inflation rate is putting pressure on the European Central Bank. Monetary authorities have set their inflation target at 2%. The current value is therefore one percentage point higher. In July, inflation was 2.2% above the ECB’s target. In normal times, the central bank should now initiate a tightening of accommodative monetary policy at the latest. But the situation is confused. The corona pandemic has caused production stoppages. The shortage has pushed up prices. But as soon as the processes normalize again, prices are likely to fall again. There is also a base effect: because inflation rates are compared on an annual basis, massive price collapses at the onset of corona containment have a mathematically strong impact. The ECB expects the inflationary surge to weaken in 2022.
Nonetheless, ECB President Christine Lagarde will address the issue at the next monetary policy meeting on August 9. The central bank has made € 1.85 trillion in emergency aid available. The ECB uses the money to buy Eurozone government and corporate bonds in monthly installments. In this way, it lowers the costs of refinancing for states and businesses. The program will run until March 2022. The question is whether it will be extended at all, and if so, how it will be extended. Bundesbank President Jens Weidmann wants to end emergency aid as soon as the economy recovers. And that’s exactly what it sounds like: The European Commission expects economic growth of 4.8% for this year.