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Euro zone inflation ticks up in April

May 17, 2023
2 Min Read
Euro zone inflation ticks up in April

 Euro zone inflation accelerated last month, Eurostat said on Wednesday, confirming preliminary data pointing to increasingly stubborn price growth among the 20 nations sharing the euro.

Overall price growth accelerated to 7.0% in April from 6.9% a month earlier, as rising services and energy costs offset a slowdown in food price growth.

Although underlying price growth, the key focus of European Central Bank policymakers in recent months, slowed a touch, the crucial services component continued to accelerate, pointing to mounting wage pressures that could get inflation stuck above the ECB’s 2% target.

Excluding volatile food and fuel prices, core inflation slowed to 7.3% from 7.5%, while an even narrower measure, which excludes alcohol and tobacco, slowed to 5.6% from 5.7% in its first decline since last June.

Inflation has been above the ECB’s 2% target for nearly two years and the bank has lifted interest rates by a combined 375 basis points since last July to arrest runaway price growth.

But more hikes are likely as it could be 2025 before inflation is back at target and the “last mile” of disinflation, getting from 3% to 2%, could be especially difficult, taking nearly 2 years.

Wages are still down in real terms given rapid inflation but low unemployment and growing labour scarcity, especially in services, is driving up nominal wages.

The ECB has long said that nominal wage growth of 3% would be consistent with its inflation target but this year’s rise could be twice as fast.

Unexpectedly generous wage deals in Germany, the bloc’s biggest economy, also raise the risk that labour costs could continue to rise especially quickly next year, prolonging inflation.

Markets see the ECB’s 3.25% deposit rate rising to just below 3.75% this summer but some policymakers have already warned that this may not be enough.

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