Inflation in the Eurozone accelerated in April, as prices for services and energy sources overshadowed the decline in food prices.
It is reported Reuters with reference to Eurostat data.
Inflation accelerated to 7.0% in April in annual terms. For comparison, in March inflation was 6.9%. The driver was the increase in the prices of services and energy carriers, which compensated for the slowdown in the growth of food prices.
Inflation in the service sector, which is primarily driven by labor costs, accelerated to 5.2% from 5.1%. This confirms the fears of politicians that the growth of nominal wages may become dangerously fast. The European Central Bank considers nominal wage growth of 3% to be normal for achieving the inflation target, but growth could be twice as fast this year.
Real wages continue to fall in the euro area due to high inflation, but low unemployment and growing labor shortages, especially in the services sector, are supporting nominal wages.
Core inflation, which excludes sharp fluctuations in food and fuel prices, slowed to 7.3% from 7.5%.
Inflation has been above the ECB’s 2% target for almost two years now, and the European regulator has raised interest rates by a total of 375 basis points since last July to stem rapid price rises. It is likely that the ECB will continue to raise rates, as forecasts currently expect inflation to return to the target level as early as 2025.
Markets expect the ECB’s 3.25% deposit rate to rise to just below 3.75% this summer, but some policymakers have already warned it may not be enough.