Euro zone inflation accelerates to 7% in April, confirming preliminary data

Euro zone inflation accelerated to 7 per cent in April, up from 6.9 per cent in March, confirming preliminary data.

The latest Eurostat figures indicate the lift in headline price growth was driven by rising services and energy costs and offset by a slowdown in food price growth.

On the upside, underlying or core inflation, which strips out volatile energy and food prices, eased to 7.3 per cent from 7.5 per cent.

Underlying price growth has been a key focus of European Central Bank (ECB) policymakers amid concern the initial price surge has spread out to other parts of the economy and may be driving higher wage demands.

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Inflation has been above the ECB’s 2 per cent target for nearly two years and the bank has lifted interest rates by a combined 375 basis points since last July to arrest runaway price growth. Markets see the ECB’s 3.25 per cent deposit rate rising to just below 3.75 per cent this summer but some policymakers have already warned that this may not be enough.

Services inflation, which is primarily driven by labour costs, accelerated to 5.2 per cent from 5.1 per cent, confirming policymaker fears that nominal wage growth could become dangerously fast.

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Wages are still down in real terms given rapid inflation but low unemployment and growing labour scarcity, especially in services, is driving up nominal wages.

Eurostat’s Harmonised Index of Consumer Prices (HICP) suggested inflation in Ireland fell to 6.3 per cent in April, down from 7 per cent, again confirming an earlier flash estimate from the Central Statistics Office (CSO).

[ Irish workers experience sharp dip in living standards as inflation erodes pay rises — OECD ]

While the HICP is used to allow comparisons across euro zone countries, the official measure of Irish inflation is the Consumer Price Index (CPI).

It suggested inflation in Ireland was running at 7.2 per cent in April, down from 7.7 per cent previously. The Government expects inflation in Ireland to moderate to below 5 per cent later this year. – Additional reporting by Reuters