Euro Area: Inflation came in at 13-year high in September
October 20, 2021
Harmonized inflation came in at 3.4% in September, above August’s 3.0% and marking the highest print since September 2008. Inflation therefore moved further above the European Central Bank’s target rate of 2.0%. September’s result was due to sharper increases in prices for energy, food, alcohol and tobacco and services. Meanwhile priced for non-energy industrial goods increased at a softer pace than in the previous month.
On a monthly basis, harmonized prices rose 0.47% in September, above August’s 0.35% increase. Core inflation, which excludes volatile energy and unprocessed foods prices, jumped to 1.9% in September from August’s 1.6%, the highest print since July 2012.
Commenting on the short-term outlook for inflation, Bert Colijn, senior economist at ING, stated:
“We see two kinds of second-round effects materialising, keeping inflation higher than expected next year. The first is the pass-through from higher producer prices to consumer prices. In the past, producers absorbed higher costs by squeezing profit margins. This time around, they seem to be willing to pass on higher costs to consumers as illustrated by the fact that selling price expectations in both the manufacturing and services sector are currently at or are close to record highs. The second pass-through channel will be wages. The mismatch in the labour market between the lack of skilled workers and still high unemployment rates as well as a re-regionalisation of production as a result of supply chain frictions could give rise to higher wages.”