High energy prices: Inflation in the euro area rises to four percent

The last time the inflation rate was four to the decimal point was in September 2023, when food prices in particular rose sharply. Energy is currently the number one price driver: it rose by 20.8 percent compared to the same month last year. In September the rate of increase was 18.9 percent.

The European Central Bank (ECB) recently warned of increasing risks of inflation in connection with the ongoing oil price shock resulting from the Iran war. After recently taking a break from interest rates, it is likely to combat price increases with the third increase of the current year in December.

Signals in this direction recently came from Bundesbank chief Joachim Nagel. He called an interest rate increase in December “very likely necessary from today’s perspective.” The ECB Council member emphasized that the inflation outlook had recently deteriorated.

Inflation is well above target

The ECB is aiming for an inflation rate of two percent - a value from which it is now far away. In June and September it had already reacted to the surge in inflation as a result of the Iran war and raised the key interest rate to the current 2.50 percent.

The central bank wants to avoid the oil price shock triggering a broad rise in prices: With persistently high energy costs for consumers and companies, the risk that wages and prices will spike increases.

The ECB pays particular attention to the dynamics of underlying inflation, which excludes the volatile prices for energy and food. This so-called core rate stabilized in October: as in the previous month, it was 2.5 percent.