Energy pushes consumer inflation in the Euro Area to yet another record high

Consumer prices in the Euro Area kept increasing in January 2022, with the growth rate of the headline indicator accelerating to 5.1% y/y from 5%y/y in the previous month, according to the flash estimate by Eurostat. The core inflation, which excludes the volatile food and energy prices, on the other hand, decelerates to 2.3% y/y from 2.6% y/y in December 2021, essentially confirming that the high energy prices are the main driver consumer price increases.

The growth rate of the headline indicator accelerated to 5.1% y/y

And indeed, the energy annual inflation hit yet another record high (28.6% y/y) after decelerating in December to 25.9% y/y. The January move proved that any hope for persistent deceleration was premature.

The change of the headline index on a monthly basis points to a deceleration. For January consumer inflation was 0.3% m/m and this is the third straight month with a slowdown.

Eurostat publishes its flash estimates of inflation just a day before ECB's monetary policy meeting on Thursday. The Governing Council chaired by president Christine Lagarde will also give press conference in the afternoon on February 3rd, which will definitely be closely followed by decision makers both in the governments and businesses in the member states.

The current inflation levels in the Euro Area are well above the target, which is close to, but below 2%. According to ECB these elevated price increases are temporary and that is why the monetary authority does not yet take any action. According to the minutes of ECB's meeting in December, the bank expects inflation to decline in the course of 2022 and to average at 3.2% y/y. These projections experienced substantial upward revisions mostly due to the energy prices but also because of supply bottlenecks and the reopening of the economy. Despite the better-than-expected economic performance Governing Council member were still cautious, because the Euro Area economy was “not yet out of the woods” in the light of the emergence of the Omicron variant of the coronavirus.

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