Eurozone Inflation Hits 10-Year High Amid Global Supply Shortage

August CPI Up 3% Year-on-Year
Consumption Expansion Driven by Economic Recovery

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] The inflation rate in the Eurozone, comprising 19 countries within the European Union (EU) that use the single currency euro, has reached its highest level in 10 years. Amid ongoing global semiconductor supply shortages causing supply bottlenecks, the expansion of consumption due to economic recovery is also analyzed to have driven up prices.

On the 31st (local time), Eurostat, the EU's statistical authority, announced that the consumer price index (CPI) inflation rate in the Eurozone for August (preliminary) rose by 3% compared to the same period last year. This figure exceeds the 2.2% increase recorded in the previous month and is the highest in over a decade since November 2011.

Germany also reported that consumer prices in August rose by 3.9% compared to a year earlier, marking the highest inflation rate in 28 years since December 1993 (4.3%) after the reunification of East and West Germany, according to the German Federal Statistical Office.

These figures come amid rising inflation rates worldwide. The Wall Street Journal (WSJ) reported, "Rising energy prices due to demand recovery and semiconductor supply shortages are pushing up consumer prices."

Meanwhile, the European Central Bank (ECB) has stated that it will pursue expansionary policies even if it means tolerating temporary inflation, as Europe's economic recovery is showing slow progress and the ECB aims to stimulate a rebound. In fact, WSJ reported that the Eurozone's economic size in the second quarter was below the level at the end of 2019.

WSJ analyzed, "After the 2008 financial crisis, the ECB raised benchmark interest rates before a full economic recovery was achieved, resulting in an 18-month economic contraction in the Eurozone. ECB policymakers appear to be focusing on economic recovery to avoid repeating such past mistakes."

However, external risks such as raw material supply shortages are expected to pose variables to the ECB's quantitative easing stance. In particular, the rapid spread of the Delta variant in Asia, where many manufacturing plants are concentrated, is causing factory shutdowns, which is expected to increase inflationary pressures.

Philip Lane, the ECB's Chief Economist, said, "There are signs that bottlenecks will last longer than expected." Jack Allen-Reynolds, an economist at Capital Economics, also warned, "There are signals that supply shortages will further increase pressure on consumer price inflation."

This content was produced with the assistance of AI translation services.