Eurozone Inflation Accelerates, But Everything Hinges On Energy

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Eurozone inflation continues its steady climb, with the region’s annual rate up to 2.8% in April from 2.7% in March, according to Eurostat.

Core inflation continues to accelerate too, up to 1.8% year-over-year.

Energy remains the key driver of rising prices, with fuels for transport adding 0.56% to the headline annual inflation number. That number may fall in May, as a result of the recent decline in Brent crude prices, from around $120 a barrel to $110, and slow May’s annual inflation rate.

Notably, housing was up 0.5% annually, suggesting low interest rates are starting to feed prices for core’s housing sector, so this isn’t just about energy.

Further, the differences between the inflation situation in certain parts of the eurozone has now become dramatic.

  • Ireland: 1.5% year-over-year
  • Germany: 2.7% year-over-year
  • Portugal: 4.0% year-over-year

So it’s not exactly an easy region to manage inflation in, with deflationary pressures taking hold in Ireland, the German economy booming, and Portuguese consumers facing sharp price rises amidst weak growth.

So Trichet’s next rate hike decision still remains unclear.

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