Why it matters: The goal is to control inflation while preventing recession.
The International Monetary Fund recently said it would avoid recession while controlling inflation Europe’s greatest challenge In the coming months, the continent will continue to digest the impact of the war in Ukraine on its economy.
So far, the European Central Bank’s campaign to raise interest rates has helped reduce overall inflation from a peak of 10.6 percent last October. The eurozone is avoiding a recession, but economic growth remains moderate.
Credit data released by the central bank on Tuesday showed weakening demand for consumer credit, as banks made it more difficult for borrowers to get loans and higher interest rates for borrowing plunged demand, further cooling the economy.
But policymakers caution that they will be looking for signs that prices will fall in the long run.
“We should see a steady decline in core inflation, giving us confidence that our policies are starting to work,” said Isabelle Schnabel, a member of the central bank’s executive committee. said in an interview with Politico last week.
By country: Rates were higher in the Baltic countries, but decreased in Germany.
The Baltic states and Slovakia had double-digit price increases, while Latvia had 15 percent. Some major European economies with low rates are dealing with pressure from workers demanding higher wages to keep up with rising living costs.
The varying rates also reflect domestic measures introduced by governments to control energy prices. As the summer vacation season ramps up, countries with strong tourism markets are also poised to see the impact of rising service prices.
In Germany, Europe’s largest economy, the annual inflation rate fell to 7.6 percent from 7.8 percent in March. Food prices remained stubbornly high, while government intervention to control energy costs began to take hold.
Workers in Germany’s public sector have agreed to give 2.5 million employees a 5.5 percent pay rise next year. The deal is expected to set a precedent for other wage talks and threaten the European Central Bank’s forecast that eurozone wage growth will peak this year.
In France, hit by a wave of strikes for months against a government decision to raise the retirement age, inflation rose to 6.9 percent in April from 6.7 percent in March, driven largely by energy and services prices. Little.
In Spain, prices rose to 3.8 percent in April from 3.1 percent in April as food costs rose, even as energy prices continued to fall from record levels last year.
What’s next: The European Central Bank’s decision.
Inflation data will influence the European Central Bank’s decision on whether to continue raising interest rates in an effort to curb inflation. The bank’s governing body meets on Thursday, and most analysts estimate it could vote to raise rates by a quarter or half a percentage point.
Last month the bank raised its deposit rate to 3 percent, the highest since October 2008, as it sought to cool demand and bring inflation closer to its 2 percent target.
“Although headline inflation has eased and is coming down further, it is not yet a moment of relief,” said Carsten Breschi, chief economist at ING Germany. “The ECB does not want to repeat the previous mistake of underestimating inflation, so it will be prepared to go too far, even if it turns out to be a policy mistake.”