Energy prices spiraling by 38.3% in August

Durrant Pate/Contributor

Countries in the Euro Area are facing an alarming rise in inflation, driven by rising energy prices, which is getting out of control.

For the month of August, inflation surged further to 9.1 per cent with food prices outpacing inflation, increasing by 10.6 per cent. However, the rise in inflation is most as a result of rising energy prices, as the energy price inflation went up by a whopping 38.3 per cent, which is a continuation of the incredibly high prices, which have been trending.

And once again energy prices accounted for the majority of overall inflation. This remains the case even though supply bottlenecks have been easing, so too have higher input costs related to energy.

There has also been the easing of disruptions of trade in food commodities and adverse weather conditions, which continue to gradually feed through to consumer prices putting upward pressure on inflation, as is recovering demand in the services sector.

Euro depreciation also a factor

The depreciation of the Euro has also contributed to the build-up of inflationary pressures and price pressures are spreading across more and more sectors, in part owing to the impact of high energy costs across the whole economy. According to the European Central Bank (ECB) staff macroeconomic projections for September 2022, headline HICP inflation is expected to remain above nine per cent for the rest of 2022.

This will be due to extremely high energy and food commodity prices, as well as upward pressures from the economy’s reopening, supply shortages, and tight labor markets. The expected decrease in inflation from 8.1 per cent in 2022 to 5.5 per cent in 2023 and 2.3 per cent in 2024, is based on a sharp decline in energy and food price inflation.

These will arise from the negative base effects and an assumed decline in commodity prices in line with futures prices. In 2024, headline inflation is expected to remain above the ECB’s two per cent target.

Relative to Euro system staff projections for June 2022, headline inflation has been revised up significantly for 2022 (by 1.3%). For 2023, headline inflation is expected to rise by 2.0 per cent next year and slightly up by 0.2 per cent for 2024.

These projections are reflective of recent data surprises, dramatic increases in wholesale gas and electricity price assumptions, stronger wage growth, and the Euro’s recent depreciation.