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Eurozone inflation reached a new record high of 5% in December

Eurozone inflation reached a new record high of 5% in December

January 10, 2022: -Eurozone inflation reached a new record high in December, which raises more questions about the European Central Bank’s monetary policy.

Preliminary data showed on Friday that the headline inflation rate came in at 5% for the month, compared to last year’s same month. The figure represents the highest record and follows November’s all-time high of 4.9%.

The increase was primarily regarding higher energy prices.

“After hitting 5.0% in December, headline euro-zone inflation should fall this year as the energy component plummets,” Capital Economics said in a note Friday.

Inflation is in the spotlight after consecutive increases in the last months, with money managers debating if the European Central Bank should be taking a more aggressive stance to combat rising prices.

Last month, the central bank said it would be cutting its monthly asset purchases but vowed to keep its unprecedented stimulus level in 2022.

“Monetary accommodation is still needed for inflation to stabilize at the 2% inflation target for the medium term,” the ECB said at the time.

Its forecasts put headline inflation at 1.8% in 2023 and 2024, which was updated in December. However, it expects the rate to overshoot the bank’s target in 2022, coming in at 3.2%.

Economists argue that the pandemic and inflation are among the most significant risks for economic performance in 2022.

“If inflation were to spring further and persistent upside surprises, central banks might be forced to step on the brakes hard,” analysts at Berenberg said on Friday in their global outlook for the new year.

They add that the ECB could prepare the ground for a first hike in the spring of 2023.

The euro was nearly 0.2% against the dollar to trade around $1.131 by mid-morning in Europe.

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