Inflation in the Eurozone is declining for the fifth consecutive month. Last month, prices increased by 6.9% over the previous year. This is evident from the final Eurostat inflation data. “Good news,” says economist Edin Mujagić, “but if you look under the hood you can see things are going badly.”
There is no wind yet
According to Mujagić, there are two problems under the cylinder head of the European engine. First of all, core inflation – inflation that excludes food and energy prices – increased slightly from 5.6 to 5.7 percent. “This indicates that it is more persistent,” says Mujagić.
The fact that core inflation has increased slightly and regular inflation has decreased is due to the sharp decline in energy prices since the end of last year. “And besides, services inflation is perhaps the most stubborn,” Mujagić continues. In March, the average increase in the prices of services was 5.1%, compared to 4.8% in the previous month.
“We call it a plateau at too high a level”
The European Central Bank (ECB) wants to bring inflation in the eurozone back to around 2 percent, but according to Mujagić this year that won’t be possible. “Combining these two issues, services inflation and core inflation, means there’s a good chance that inflation won’t return to the level the ECB wants to see. We call it a plateau at too high a level.”
The ECB currently uses an interest rate of 3.50%, but it can go further up to 3.75%. “That makes a difference,” Mujagić says, “but with inflation rates like these and the prospect of inflation staying high for a long time, you really need higher interest rates.”
A bright spot for the Netherlands
Yet there is also a bright spot in Eurostat data. Along with Spain and Luxembourg, the Netherlands has the lowest inflation rate in the euro area. ‘This is good news, because we were in the top five highest inflation rates last year. Now we stand out favorably for once,’ says Mujagić. ‘But then again, the fact that you’re a little jubilant here about 4.5% inflation shows how perception has changed. 4.5 is and remains far too much.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
