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Eurozone inflation hits 2pc for first time since 2018

The Telegraph logo The Telegraph 01/06/2021 Bloomberg
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Inflation in the eurozone hit the highest level in more than two years after economies started to lift coronavirus restrictions and rebounding demand exacerbated supply bottlenecks.

Consumer prices rose an annual 2pc in May, higher than economists had predicted, with rising energy costs driving the jump.

Germany, Spain and Italy - three of the four largest eurozone economies - all reported increases.

Europe is starting to turn the page on the pandemic. Falling infection rates are allowing shops, restaurants and cultural venues to reopen and travel is gradually resuming, but manufacturing - which held up well during the most recent round of restrictions - is increasingly hitting supply chain disruptions.

Delivery delays for raw materials and components are constraining output growth, leaving companies unable to meet rising demand, according to a survey by IHS Markit.

While purchasing activity rose at the fastest pace in nearly a quarter century of data, manufacturers also ran down inventories of finished goods to the sharpest degree recorded since November 2009.

Factories raised their prices by the most in more than 18 years of survey data as they took advantage of the tight market to pass on higher costs.


Video: Core inflation not high, premature for ECB to tighten monetary policy: Bruegel director (CNBC)

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ECB says inflation rise is temporary

The European Central Bank has stressed that price increases are not likely to last and that remained too early to talk about unwinding monetary support.

While inflation is now at the level policymakers aimed to achieve over the medium term, much of the rise can be explained by temporary factors or energy prices.

Capital Economics said it expected eurozone inflation to keep rising in the coming months to about 2.5pc in the second half of the year. "Energy inflation will increase a touch further; there may be some 'opening-up inflation' as companies in the travel and hospitality sectors take advantage of pent-up demand to raise prices; and manufacturers may pass on part of the increase in input prices to consumers."

The ECB presents its latest forecasts on June 10. Core inflation, a less volatile measure that excludes volatile items such as food or fuels, stood at just 0.9pc in May.

The OECD also said this week that inflation would accelerate in coming months, boosted by higher operating costs and reduced competition as a result of bankruptcies, but those pressures should fade by the end of the year.

It still fears “upside risks” in the longer term as the recovery proceeds. The labour market has already started to show signs of improvement. Eurozone unemployment unexpectedly dropped to 8pc in April, Eurostat said.

At the same time, German companies made less use of the furlough programme that helped millions of workers hang on to their jobs during the pandemic. According to a separate report, joblessness in the country continued to decline in May.

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