top of page

Europe: Low inflation boosts consumers' hopes for a glimmer of hope

The inflation that has plagued Europeans fell sharply in September, raising hopes that consumers will finally get relief on the costs of groceries, vacations and haircuts — and that the European Central Bank will not have to impose further restrictions on the economy by raising interest rates from above. Already at record levels.

أوروبا .. إنخفاض التضخم يعزز آمال المستهلكين ببصيص من الأمل

The annual rate was 4.3 percent this month, down from 5.2 percent in August. But the recent rise in oil prices casts a shadow over the prospects of quickly overcoming inflation to reach the central bank's target of 2 percent.

Core inflation, which excludes volatile fuel and food prices, fell more than analysts expected - to 4.5 percent from 5.3 percent, according to data released today by the European Union's statistics agency Eurostat.

The European Central Bank is monitoring this figure closely to assess how inflation will decline.

According to "AP", Jack Allen Reynolds, deputy chief economist for the euro zone at Capital Economics, said that the decline in core inflation "reinforces our view that the European Central Bank has finished raising interest rates." He expected the overall inflation rate to fall to 3.5 percent by the end of the year.

Energy prices fell by 4.7 percent in September, while food inflation remained uncomfortably high at 8.8 percent.

Readings in major economies that use the euro were mixed. Annual inflation in Germany fell to 4.3 percent in September from 6.4 percent the previous month, while in Spain it rose to 3.2 percent from 2.4 percent.

However, economists warn that the big decline in Germany, the largest economy in the 20-nation eurozone, was exaggerated by a statistical imbalance - the end of subsidized transport and fuel subsidies in September 2022, which pushed up consumer prices that month.

The latest inflation figures come on the heels of what may be the final increase in interest rates by the European Central Bank in its series of rapid increases. It raised its benchmark deposit rate to a record 4 per cent this month, up from -0.5 per cent in July 2022.

European Central Bank President Christine Lagarde said that if interest rate levels were maintained “for a long enough period,” this would contribute significantly to returning inflation to 2 percent, a target the bank does not expect to reach until 2025. .

High prices were holding back the European economy because people's salaries no longer covered their bills as they used to, forcing them to cut back on other spending. Economic growth stagnated to slightly more than zero in the first six months of the year, and some indicators point to a decline in the current quarter, which extends from July to September.

This wave of inflation began as the global economy recovered from the COVID-19 pandemic, leading to shortages of spare parts and raw materials. The matter became worse with the start of the crisis between Russia and Ukraine, which led to a rise in energy prices as Moscow cut off most of the natural gas from Europe.

Supply chain bottlenecks and energy prices have eased, but inflation has worked its way through the economy. Prices for services such as haircuts and hotel accommodation are higher, and workers are demanding higher wages to compensate for their lost purchasing power.

The European Central Bank tries to control inflation by raising interest rates, which makes it more expensive to borrow to buy large amounts such as homes or new factory equipment for business expansion. This reduces demand for goods, and thus inflation. But higher interest rates could also impact economic growth, leaving the central bank facing a balancing act over how far to go.

Many economists believe the European Central Bank is done raising interest rates unless something drastic happens to prevent inflation from falling further. This may represent another increase in oil prices, which have recently risen.



bottom of page