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Europe’s Inflation Woes Fuelled by Soaring Energy Costs

Eurozone inflation rates continued to decline in February for the fourth consecutive month, standing at 8.5% year-on-year, according to figures published by the European statistics agency Eurostat. While a decline from October 2022 (10.6%) is a positive trend, the headline reading of 8.5% beat the median estimate of 8.3%. Food prices have surpassed energy prices as the driver of inflation, rising 15% in the Eurozone from February 2022. The increase in prices paid by the large distribution sector to suppliers has been around 10% and supermarkets will pass on at least a part of these increases to consumers. Core inflation, which excludes products such as energy, but includes food, is an index more appropriate for inflationary pressures, and its increase is a worrying factor. Services inflation accelerated to 4.8% compared to 2.5% in February 2022. The Bundesbank maintains its policy of tightening to combat inflation and suggested that interest rates will rise further in 2023. The European Central Bank plans to continue with its policy of monetary tightening but is warned of the consequences of further actions on the economy.

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