Inflation in the eurozone rose further in January to a record high of 5.1 percent on an annual basis. That reports the European statistical office Eurostat Wednesday, based on a new calculation. The main reason for the larger price increase is the more expensive energy.
Also read: Inflation has risen again. Why does the ECB not dare to raise an interest rate?
Since 2002 – the year the euro was physically introduced – the average price level for goods and services has not increased as much as in January. In December last year, inflation already reached a record high, then of 5 percent.
At 7.6 percent, inflation in the Netherlands was considerably higher than the average in January. In only five of the seventeen countries, daily life became even more expensive than in the Netherlands, compared to a year earlier. In December inflation in the Netherlands was still 6.4 percent on an annual basis. Inflation in the Netherlands is also largely due to increased energy prices.
The Central Bureau of Statistics (CBS), which uses a slightly different calculation method than Eurostat and does include, for example, the costs of living in owner-occupied homes, also made a statement earlier today. inflation of 7.6 percent known about January in the Netherlands. These are provisional figures. Next week, Statistics Netherlands will release inflation according to its own calculation method.
No ECB interest rate hike
The European Central Bank (ECB) has set an inflation target of around 2 percent. Despite this, the central bank does not yet plan to raise interest rates in 2022, while according to analysts that measure could suppress inflation. This is because core inflation – in which volatile energy and food prices do not play a role – rose relatively little: from 1 percent in the summer to 2.6 percent in December. Central bankers like to look at this measure because it reflects the ‘underlying’ price developments in the economy. In addition, the ECB fears a sovereign debt crisis when it raises interest rates, precisely because core inflation varies widely between the member states.
The ECB can curb inflation by raising interest rates. It then becomes more attractive for people to save instead of spending money. Borrowing becomes less attractive at high interest rates. The rate hike is likely to lower demand for goods and services. If production remains the same at that time, prices will fall.
At the end of 2021, the central banks of the Czech Republic, Norway and the United Kingdom did raise interest rates to deal with rising inflation. The US Federal Reserve expects to raise interest rates three times in 2022.