Eurozone Inflation Hits 10% as Power Suppliers Scramble for Reserves

The European Union’s statistics agency on Friday said consumer prices across the eurozone were 10% higher than a year earlier, the highest inflation rate since records began in 1997, two years before the launch of the common currency. Records for individual countries go further back—Germany’s statistics agency on Thursday said the country’s September inflation rate was the highest since late 1951.

“Inflationary pressure is all over the economy,” said

Carsten Brzeski,

an economist at ING Bank.

Since invading Ukraine in February, Russian President

Vladimir Putin

has used the country’s vast stores of energy as leverage to undermine European support for Kyiv. Earlier this month, Russia turned off the taps to a key natural-gas pipeline, Nord Stream.

Earlier this week, gas leaks from that pipeline and its closed twin pipeline, Nord Stream 2, following detonations registered on seismographs, have raised fears about a possible sabotage operation and prompted questions about the security of Europe’s energy infrastructure.

Deprived of much of its supply of Russian natural gas, European power suppliers have been scouring the globe for alternative sources, pushing prices ever higher in an effort to build sufficient reserves to get through the winter without rationing. According to Eurostat, household energy prices were 40.8% higher in September than a year earlier.

The higher energy costs facing most businesses are percolating through the economy. Prices of services were 4.3% higher than a year earlier, driving a pickup in core inflation to 4.8% from 4.3%.

Having lagged behind the U.S. as inflation rates began to pick up in 2021, eurozone consumer prices are now rising much faster than their American counterparts. In August, the U.S. recorded an 8.3% annual rate of inflation compared with 9.1% in the eurozone. The U.S. has yet to release figures for September.

The Organization for Economic Cooperation and Development on Monday said it now expects the average rate of inflation in the eurozone to be 8.1% this year, up from 7% when it last released forecasts in June. In the U.S., it expects average inflation to be 6.2%, up from 5.9% in June. In 2023, it expects eurozone inflation to average 6.2% and U.S. inflation to average 3.4%.

One uncertainty about the outlook for eurozone inflation is the impact of price caps announced by governments in an effort to protect households from winter hardship. On Thursday, the German government said it would ap the price of gas and electricity for consumers and companies up to a given level of consumption that has yet to be determined. Above that level, market prices would apply. A cut in value-added tax on natural gas is set to be extended through next year.

Price caps can limit pickups in inflation in the short-term, but economists warn they can cause inflation to stay high for longer, since they offer support to household spending on other goods and services.

Having started to raise its key interest rate four months later than the Federal Reserve, the European Central Bank is now scrambling to contain the surge in prices and raised its key interest rate by an unprecedented three-quarters of a percentage point in September. It has signaled that further rate rises will be announced at its coming policy meetings.

“The direction of travel is clear, and we will raise rates further in the pursuit of our objective,” said ECB policy maker Frank Elderson in a speech Wednesday.

Write to Paul Hannon at [email protected]

The European Union’s statistics agency on Friday said consumer prices across the eurozone were 10% higher than a year earlier, the highest inflation rate since records began in 1997, two years before the launch of the common currency. Records for individual countries go further back—Germany’s statistics agency on Thursday said the country’s September inflation rate was the highest since late 1951.

“Inflationary pressure is all over the economy,” said

Carsten Brzeski,

an economist at ING Bank.

Since invading Ukraine in February, Russian President

Vladimir Putin

has used the country’s vast stores of energy as leverage to undermine European support for Kyiv. Earlier this month, Russia turned off the taps to a key natural-gas pipeline, Nord Stream.

Earlier this week, gas leaks from that pipeline and its closed twin pipeline, Nord Stream 2, following detonations registered on seismographs, have raised fears about a possible sabotage operation and prompted questions about the security of Europe’s energy infrastructure.

Deprived of much of its supply of Russian natural gas, European power suppliers have been scouring the globe for alternative sources, pushing prices ever higher in an effort to build sufficient reserves to get through the winter without rationing. According to Eurostat, household energy prices were 40.8% higher in September than a year earlier.

The higher energy costs facing most businesses are percolating through the economy. Prices of services were 4.3% higher than a year earlier, driving a pickup in core inflation to 4.8% from 4.3%.

Having lagged behind the U.S. as inflation rates began to pick up in 2021, eurozone consumer prices are now rising much faster than their American counterparts. In August, the U.S. recorded an 8.3% annual rate of inflation compared with 9.1% in the eurozone. The U.S. has yet to release figures for September.

The Organization for Economic Cooperation and Development on Monday said it now expects the average rate of inflation in the eurozone to be 8.1% this year, up from 7% when it last released forecasts in June. In the U.S., it expects average inflation to be 6.2%, up from 5.9% in June. In 2023, it expects eurozone inflation to average 6.2% and U.S. inflation to average 3.4%.

One uncertainty about the outlook for eurozone inflation is the impact of price caps announced by governments in an effort to protect households from winter hardship. On Thursday, the German government said it would ap the price of gas and electricity for consumers and companies up to a given level of consumption that has yet to be determined. Above that level, market prices would apply. A cut in value-added tax on natural gas is set to be extended through next year.

Price caps can limit pickups in inflation in the short-term, but economists warn they can cause inflation to stay high for longer, since they offer support to household spending on other goods and services.

Having started to raise its key interest rate four months later than the Federal Reserve, the European Central Bank is now scrambling to contain the surge in prices and raised its key interest rate by an unprecedented three-quarters of a percentage point in September. It has signaled that further rate rises will be announced at its coming policy meetings.

“The direction of travel is clear, and we will raise rates further in the pursuit of our objective,” said ECB policy maker Frank Elderson in a speech Wednesday.

Write to Paul Hannon at [email protected]