Inflation in the Eurozone accelerated to 7% in April
Inflation in the Eurozone accelerated in April, because the prices of services and energy carriers overshadowed the fall in the prices of food products. This was reported by Reuters with reference to Eurostat data.
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Acceleration of inflation
Inflation accelerated to 7.0% in April on an annual basis. For comparison, in March inflation amounted to 6.9%. The driver was the growth of prices for services and energy carriers, which compensated for the slowdown in the growth of food prices.
Inflation in the service sector, primarily driven by labor costs, accelerated to 5.2% from 5.1%. This confirms the fear of politicians that the growth of the nominal wage may turn out to be dangerously fast. The European Central Bank considers nominal salary growth of 3% normal for achieving the inflation target, but growth this year may be twice as fast.
Real wages continue to decline in the eurozone due to rapid inflation, but the low unemployment rate and growing labor shortage, especially in the service sector, contribute to an increase in nominal wages.
Read: The EU raised its inflation forecast in the eurozone due to a sharp rise in base prices — Bloomberg
Core inflation, which does not take into account sharp price fluctuations for food and fuel, slowed to 7.3% from 7.5%.
Inflation has exceeded the ECB target of 2% for almost two years now, and since July last year, the European regulator has raised interest rates by 375 basis points to stop rapid price growth. It is likely that the ECB will raise rates even further, because forecasts expect inflation to return to the target level as early as 2025.
Markets expect the ECB’s deposit rate of 3.25% to rise slightly below 3.75% this summer, but some politicians have already warned that this may not be enough.
Read: Currency forecast: inflation in the EU decreased less than expected
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Source: Ministry of Finance
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