FRANKFURT, Oct 29 (Reuters) – Eurozone inflation beat expectations in October and reached its highest level in 13 years, adding pressure to the current monetary policy of the European Central Bank, which has over the past year reiterated its view that the increase in consumer prices will be transitory.
Inflation in the 19 countries that share the euro rose to 4.1% in October, compared to 3.4% the previous month and above the consensus forecast of 3.7%.
Inflation was driven by rising energy prices, tax hikes, and mounting price pressures from supply bottlenecks, which are limiting industrial production, especially in car manufacturing. Eurostat data showed on Friday.
The figure is the highest since July 2008 and equals the fastest pace since the data series, known as the harmonized consumer price index (CPI), began in 1997.
Only energy prices rose 23% compared to the previous year, the largest contribution to inflation. Services, which for years have seen anemic price growth, posted 2.1% inflation.
At 4.1%, consumer price growth is now more than double the ECB’s target and is likely to accelerate further in the coming months, before a slow decline next year, when some specific technical factors are eliminated from the previous year’s figures, according to analysts and those in charge of the ECB.
But all indicators suggest that inflation will decline more slowly than ECB officials thought, increasing the risk that high prices, even temporary, will take root in wages and pricing structures of companies.
Indeed, ECB President Christine Lagarde on Thursday took a more cautious tone on inflation, warning that supply disruptions will last longer than previously thought, keeping consumer prices growing for longer and putting pressure on wages.
Core inflation, a key point for policymakers as it excludes volatile food and energy prices, also accelerated above the ECB’s target.
Core inflation, which excludes food and fuel prices, and another narrower indicator that also excludes alcohol and tobacco products, rose to 2.1% from 1.9%.
In addition to concerns about inflation, an ECB survey conducted on Friday indicated that more than 30% of companies surveyed by the entity expected supply constraints and rising input costs to last another year or more. while a slightly lower percentage of those surveyed expected the difficulties to last between six and twelve months longer.
Employers also reported a job “seeker shortage” in the face of changing profession, country or lifestyle trends, which would likely lead to wage increases.
(Report by Balazs Koranyi; editing by John Stonestreet; translation by Darío Fernández)