Inflation jumps to annual 3% in Europe as fuel costs rise

FRANKFURT, Germany (AP) — The 19 countries that use the euro currency saw inflation spike to an annual 3.0% in August, up from 2.2% in July, as fuel prices rose sharply.

The increase was largely caused by one-time factors that lowered prices a year ago, but it could still feed debate about whether recently higher inflation is merely transitory or likely to linger.

The higher inflation figure released Tuesday by European Union statistics agency Eurostat also reflects other transitory factors, such the timing of summer retail sales in France and Italy, and the expiration of German tax breaks on retail purchases. Higher oil prices, following a price slump a year ago during the depths of the pandemic recession, contributed to a 15.4% rise in energy costs. With volatile fuel and food left out, core inflation was 1.6%

Economists have cited a raft of additional reasons for recently higher prices in Europe. Some hotels and tourist businesses have marked up prices after the end of pandemic lockdowns, while supply chain disruptions and higher raw material prices have raised prices for producers of goods as economic activity has picked up.

Since many of the factors are temporary, economists do not expect the European Central Bank to attempt to counter inflation by curtailing its stimulus programs or by raising interest rates. The central bank's most recent projections from June see inflation hitting 1.9% for all of this year, and falling to 1.5% next year. The ECB's governing council next meets Sept. 9 to review its policy stance.

Still, higher inflation is getting public attention, as witnessed by the front page of Germany's Bild newspaper trumpeting a “new inflation shock” after German figures came in at 3.4% based on inflation outcomes of several regions, the highest in 13 years. Higher inflation expectations could play a role in wage demands by German unions in upcoming negotiations, according to Carsten Brzeski, global head of macro research at ING bank.

The higher figures come after an extended period of low inflation that undershot the ECB's goal of below but close to 2%. The bank has recently revised the goal to allow for brief periods of inflation above 2%. Inflation has been low across the developed world for years, with economists theorizing that causes could include digitalisation, ageing populations and global competition in labor markets.