“Defeating inflation is our mantra, our mission, our mandate,” and that’s “why we have to raise interest rates”: ECB’s Lagarde now, after years of money-printing and NIRP.
By Wolf Richter for WOLF STREET.
The overall inflation rate in the 19 countries that use the euro jumped to 10.7% in October, up from 9.9% in September, by far the worst in the history of the Eurozone data going back to 1997, driven by energy, food, non-energy industrial goods, and increasingly services, according to Eurostat today. Compared with the prior month, inflation spiked by 1.5%; on an annualized basis, that’s close to 20%!
In Germany, inflation spiked to 11.6%, based on the harmonized method used by Eurostat. Germany’s own CPI measure, released last week, jumped to 10.4%, the worst since 1951. In the three Baltic countries, inflation remained above 20%.
Inflation began spiking last year well before Russia’s invasion of Ukraine. Early 2021 was when the inflation dam broke globally, with the pandemic money-printing and deficit-spending binge still in full swing. The dam just broke, and inflation washed over the lands. In July 2021 in the Eurozone, inflation shot past the ECB’s target of 2%. It hit 4.9% in November 2021, and 5.1% in January 2022 before the war in Ukraine had begun. Russia’s invasion of Ukraine made the existing trends worse:
The CPI without energy components — so without retail price changes for gasoline, diesel, electricity, natural gas piped to the home, and other energy components in the basket of consumer goods and services — spiked to 6.9% in the Eurozone. This measure began rising in the summer last year, hit 2% in October 2021, and 3.1% in February 2022.
The ECB’s own horror show.
On Friday, to prepare for the public airing of this horror show that inflation in the Eurozone has become, Christine Lagarde, president of the ECB – the very entity that is in charge of this horror show – came out and said in an interview on Irish broadcaster RTE that “defeating inflation is our mantra, our mission, our mandate.”
She then tweeted about that interview, repeated that phrase, and added: “We know that the current situation is tough for many people across the euro area – that is why we have to raise interest rates to tame inflation.”
This statement is a hoot after she and her predecessor, Draghi, and everyone at the ECB, should have thought about that years ago, before repressing interest rates into the negative, which is a total absurdity, and printing nearly €7 trillion over the past seven years to load up the ECB’s balance sheet that now has €8.8 trillion in assets.
But at least, the ECB has gotten started. Last week, it hiked its deposit rate by 75 basis points to 1.5%, having now hiked by 200 basis points in three meetings starting in July, the fastest three-meeting rate increase in its history, and it “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target,” it said. But this deposit rate of 1.5% is still kind of a hoot, with CPI inflation at 10.7%.
Inflation by Eurozone country.
In Germany, inflation spiked to 11.6%, an unthinkably high rate for Germans. But already in November 2021, well before Russia’s invasion of Ukraine, inflation hit 6.0% in Germany.
This was just after Bundesbank President Jens Weidmann – whose central bank has been helplessly watching and politely lamenting the ECB’s shenanigans – turned in his resignation in October, to become effective on December 31. He’d had it.
And yet, inflation subsidies lowered the inflation numbers. Across Europe, governments have come up with schemes, subsidies, tax cuts, and caps to reduce the bite of this inflation, particularly related to fuel, energy more broadly, and public transportation. Some of those subsidies have now expired, including in Germany.
In the three Baltic countries, there was a slight downtick in October, but CPI rates remained above 21% in all three.
|Annual CPI increase, October 2022|
This chart shows the inflation rate of each of the 19 Eurozone member states:
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