Eurozone Inflation Rate Hits Record High... Scholz, Germany's Next Chancellor, Says "Government Response Needed"

Russian Central Bank Governor: "Benchmark Interest Rate May Increase by More Than 1 Percentage Point at December Meeting"

[Asia Economy Reporter Park Byung-hee] The Eurozone Consumer Price Index (CPI) inflation rate soared to an all-time high since the introduction of the euro in 1999, Bloomberg reported on the 30th of last month (local time).

Eurostat, the statistical office of the European Union (EU), announced that the Eurozone CPI rose 4.9% year-on-year in November. This figure not only significantly exceeded the 4.5% forecast compiled by Bloomberg economists but also surprised all 40 economists surveyed, none of whom had predicted a 4.9% increase, indicating a sharp acceleration in inflation.

However, the euro exchange rate and Eurozone bond yields showed little fluctuation. Despite the significant rise in prices in November, it is interpreted that the spread of the COVID-19 Omicron variant could be a variable affecting future inflation.

Olaf Scholz, the next Chancellor of Germany, said in an interview with Bild TV on the same day that the government must take action if prices do not stabilize. Scholz stated, "We did not aim for such high inflation," and added, "We need to closely monitor price movements." However, he did not mention any specific government measures.

Bloomberg explained that the independence of the European Central Bank (ECB) is guaranteed by EU treaties, and it is unclear what measures the German government can take.

Within the ECB, debates over inflation are intensifying. Jens Weidmann, President of the German Bundesbank, argues that Eurozone inflation will exceed the ECB's medium-term monetary policy target of 2%, and that the ECB should end quantitative easing early. On the other hand, Pablo Hern?ndez de Cos, Governor of the Bank of Spain, claims that Eurozone inflation will stabilize by the second quarter of next year and that it is still too early to end quantitative easing. Both Germany and Spain recorded their highest inflation rates in 30 years in November. ECB President Christine Lagarde's stance is closer to that of Governor de Cos.

Elvira Nabiullina, Governor of the Central Bank of Russia
Photo by Reuters Yonhap News

Meanwhile, resource-rich Russia is also experiencing growing concerns about inflation. Elvira Nabiullina, Governor of the Central Bank of Russia, stated that the bank is considering raising the benchmark interest rate by up to 1 percentage point at the monetary policy meeting scheduled for the 17th.

Since November, Russia's CPI inflation rate has risen to 8.1%, the highest since January 2016. Russia has raised its benchmark interest rate by a total of 3.25 percentage points this year. Governor Nabiullina said, "It is still too early to gauge the impact of the Omicron variant on monetary policy," adding, "At the December meeting, a rate hike from a freeze to 1 percentage point is possible, with a freeze being the least likely."