Eurozone October CPI 10.7%, Record High... Stagflation Concerns Amid GDP Plunge (Comprehensive)

Concerns Over Economic Downturn Amid Deepening Energy Crisis
Fears of Additional Interest Rate Hikes to Curb Soaring Inflation

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The Eurozone (19 countries within the European Union (EU) using the euro) recorded a year-on-year consumer price index (CPI) forecast of 10.7% in October, marking an all-time high. Amid soaring inflation, the preliminary third-quarter regional gross domestic product (GDP) growth rate sharply dropped to 0.2% quarter-on-quarter, raising concerns about stagflation. With expectations that the European Central Bank (ECB) will once again sharply raise interest rates to curb inflation, the international stock markets are also expected to be adversely affected.

On the 31st (local time), Eurostat, the EU's statistical office, announced that the October CPI forecast rose 10.7% year-on-year, the highest since statistics began in 1997. Despite the ECB raising its benchmark interest rate from 1.25% to 2.00%, a 0.75 percentage point increase, marking two consecutive months of 'Giant steps,' the CPI surged dramatically.

Eurostat stated that the main drivers of the CPI increase were the sharp rises in energy and food prices. Energy prices in the Eurozone in October surged 41.9% year-on-year, and food prices also rose by 13.1%. The core inflation rate increased from 4.8% in September to 5% in October.

On the other hand, the Eurozone's preliminary third-quarter GDP growth rate was 0.2% quarter-on-quarter, significantly down from the 0.8% recorded in the previous quarter. The existing market forecast was 1.0%. Due to the prolonged Ukraine war and Russia's pressure to cut gas supplies, the EU is importing substitute gas from the US and the Middle East at high prices. Amid concerns that major EU countries may implement gas rationing starting this winter, the GDP growth outlook remains bleak.

In particular, concerns are growing about an economic recession in Eurozone countries as some factories or businesses in countries, especially Germany, where major power facilities use natural gas, may be forced to reduce electricity usage to supply heating gas for households.

Furthermore, after the ECB's two consecutive Giant steps, the market had expected a slowdown in the pace of rate hikes. However, with soaring inflation and a sharp drop in GDP growth raising the possibility of stagflation, concerns are emerging that the ECB may resume steep interest rate hikes.

Paul Hollingsworth, an economist at BNP Paribas, explained in an interview with the Wall Street Journal (WSJ) on the same day, "There was strong market expectation that the ECB, which raised rates on the 27th, would slow the pace of rate hikes, but this inflation data raises questions about whether it is premature to slow down the pace of rate hikes."

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