Inflation for European Union nations took a sharp turn skyward in March, according to the latest figures. While the headline Consumer Price Index (CPI) fell to 6.8% year-over-year, which came in significantly below expectations, core CPI soared to a new record level.
This baseline number, which excluded energy, food, alcohol, and tobacco for the EU, jumped to an all-time high of 5.65%. Energy prices were the main movers in the opposite direction in an otherwise disturbing report.
This spells trouble for a continent already beset with unhappy citizens grappling with prices they have never encountered.
— Mathan Soma (@Mathan_Soma) March 31, 2023
As long as energy costs are factored in, solace may be taken by member nations that headline inflation fell to 6.9% in March. The preliminary Eurostat figures released Friday showed the drop from February’s 8.5% rate.
This was the biggest drop since Eurostat began collecting data in 1991. It must be noted that March’s energy numbers are compared to March of 2022 when Russia invaded Ukraine and sent global markets into turmoil.
On the opposite end from energy were food prices, which led the surge upward for the headline number.
Economists do not believe that these levels will convince the European Central Bank (ECB) to put the brakes on its interest rate increases. That program, like the one implemented by the Federal Reserve, began in mid-2022 to try to rein in runaway inflation.
The headline figure’s fall was offset by the record high in core inflation, and Jack Allen-Reynolds of Capital Economics said Friday that the latter is more important.
He noted that “policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high.”
Allen-Reynolds added that the central bank is likely to continue with rate hikes for the near future. Regulators are already on a record streak of increases in their battle with inflation.
Good news may have come from the EU’s two largest economies on Friday as both showed a lowering of consumers’ ability to spend. This largest indicator of upward pressure on prices decreased in France, and German retail sales also fell.
A new survey also pointed towards EU households wanting to save more, which would likewise decrease inflationary pressures.