Just in Time for ECB Rate-Hike Meeting: Eurozone Services Inflation Spikes to New Record. Overall Inflation Re-Accelerates

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Just in Time for ECB Rate-Hike Meeting: Eurozone Services Inflation Spikes to New Record. Overall Inflation Re-Accelerates
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In the 20 countries that now use the euro, the annual rate of inflation in services rose to 5.2% in April, another record in the data going back to 1997, according to the preliminary data released by Eurostat today. Another nasty surprise, another sign that inflation has now shifted deeply into the economy in a fundamental way, despite sharp price drops of energy goods and some durable goods.

Services inflation is the biggie. The majority of what consumer spend their money on goes to services. They include healthcare, education, housing, insurance, telecommunications, streaming, subscriptions, air fares and lodging, restaurant meals, repairs, cleaning, financial and legal services, haircuts, etc.

Inflation is difficult to control once it reaches services. This is made worse because a number of these services are essentials that consumers cannot dodge or substitute or go without.

This “core” CPI without energy and the services CPI have been invoked repeatedly by ECB President Christine Lagarde and ECB governors as reason for continued rate hikes. The wage component of services inflation has reached a point where Lagarde has gingerly mentioned the connection as a worrisome trend.

The overall CPI rate re-accelerated to 7.0% in April compared to a year ago (from 6.9% in March). On a monthly basis, the overall CPI surged 0.7% in April from March, another nasty surprise.

The plunge in energy prices last year and early this year, that pushed down the overall CPI, seems to have largely bottomed out. Food inflation slowed to a still red-hot 13.6% (from 15.5% in the prior month).

Overall CPI Inflation in the Eurozone began surging in early 2021, a year before Russia’s invasion of Ukraine. In October 2021, months before Russia’s invasion of Ukraine, the Eurozone inflation rate surpassed prior records.

This came after years of reckless money printing and interest-rate repression – the Eurozone was part of the negative-interest-rate-policy absurdity. All this was amplified during the pandemic by large-scale government deficit spending directly into the consumer economy. And voilà.

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