Inflation continues to rise in Europe

Government subsidy cuts are a major contributor to the acceleration in inflation, not just in Germany but in many other European countries. Financial Banking European Inflation Continues to Rise Tram Anh • {Publication Date} Government subsidy cuts are the main reason for accelerating inflation, not only in Germany but also in many other countries in Europe.

Annual inflation rates rose in December 2023 in Germany and France, the EU’s two major economies. Eurozone inflation is expected to rise to 3% in December from 2.4% in November 2023, ending six consecutive months of decline. Analysts expect euro zone inflation data to be released on January 5. If true, it would be the first time inflation has risen in the region since April 2023.

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Data from the German statistics agency Destatis on January 4 showed that the consumer price index (CPI) of Europe’s largest economy rose by 3.8% last month compared with the same period last year, an increase of 2%.35 recorded in November 2023.

According to the Financial Times, government cuts to gas, electricity and food subsidies last year were the main reason for accelerating inflation, not just in Germany but in many European countries. In December 2023, German electricity prices increased by 4.1% year-on-year, reversing the 4.5% decrease in November 2023.

Economists expect the increase to be driven in part by European governments withdrawing generous subsidies introduced to support households during the 2022 energy crisis.

As global inflation began to rise in late 2021 after lockdowns due to the Covid-19 pandemic ended, European governments have spent hundreds of billions of dollars in subsidies to protect households and businesses facing sharp increases in energy prices. Subsidies were increased after tensions between Russia and Ukraine escalated in February 2022.

Specifically, the German government will cover gas and heating bills for households in December 2022, helping to reduce inflation. The subsidy is now gone, and although energy prices have fallen since then, they are now rising again in December 2023.

The French Statistics Office recorded on January 4 that the annual inflation rate rose to 4.1% in December from 3.9% in November 2023. The country’s rising inflation reflects higher prices for energy and services.

“Today’s report generally reflects that the downward trend in inflation is continuing, as it has been in recent months, and is falling faster than before,” said Oliver Lacow, an economist at economic research firm Oxford Economics. European Central Bank (ECB) forecasts.

Mr. Paul Donovan, chief economist at UBS Global Wealth Management, also held the same view. He said: “Inflation momentum is still building, but the pace has slowed. There is no evidence in the data that price stickiness or long-term inflation is rising.” We are currently at This is seen in Europe, the UK or the US. Inflation continues to surprise but is trending downward. “

However, Mr Donovan also predicted that core inflation – excluding volatile energy and food costs – in the 20 countries that use the euro may slow in the near future.

At the same time, Andrew Cunningham, chief European economist at Capital Economics, expects the euro zone’s annual core inflation rate to fall from 3.6% in November 2023 to 3.3% in December 2023, and will continue to decline. Mr Cunningham said the most important question was what would happen to core inflation and underlying inflationary pressures.

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