The price rally is not only continuing in Germany: consumer prices also rose significantly in October in the eurozone as a whole.

As the European statistical office Eurostat announced on Friday after an initial estimate, the inflation rate for the euro countries was 4.1 percent in October, after 3.4 percent in September.

Energy prices rose particularly sharply compared to the previous year.

But services and industrial goods also became significantly more expensive.

Christian Siedenbiedel

Editor in business.

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In the meantime, prices are rising particularly noticeably in the Baltic countries, with Lithuania at the top with 6 percent.

There is no longer a negative inflation rate in any euro area, as was the case recently in Portugal and Greece.

In Italy, inflation is now 3.8 percent, in France 3.3 percent.

ECB President Christine Lagarde announced on Thursday that the central bank would leave interest rates unchanged despite the rise in inflation and continue bond purchases at an only “moderately” slower pace than in the summer. 

Higher inflation forecasts

Experts interviewed by the ECB have now raised their inflation forecasts. For the current year they are now assuming an average of 2.3 instead of 1.9 percent, for the coming year of 1.9 instead of 1.5 percent and for 2023 of 1.7 instead of 1.5 percent. It is expected that the ECB itself will also revise its inflation forecast upwards in December and then decide on the future of the bond purchases.

Lagarde had indicated in the press conference after the ECB Council meeting on Thursday that certain price-driving effects, such as the supply bottlenecks in the wake of the economic recovery, could last longer than originally expected.

A survey of companies showed that many did not expect an improvement in this question until the course of next year or at the end of next year, but not in the first quarter.

In the Governing Council there has evidently been debates about how much and when inflation will fall again in the next year, as has meanwhile penetrated the outside world.

That is an important question;

the central bank has so far argued that the rise in inflation is only temporary and that inflation will fall below the target of 2 percent again within its forecast horizon of three years.

Debates in the ECB

The news agency Bloomberg reports, citing insiders, that the ECB's monetary politicians are now assuming that inflation will exceed the target of 2 percent next year. However, they disagree about whether it will stay at this level in 2023. As heard, Chief Economist Philip Lane insisted in Thursday's decision that consumer prices will fall below target again after 2022 and that the underlying pressures will not be strong enough.

Some others objected that the target could be exceeded, citing the risk of second-round effects.

This means, for example, that the trade unions can demand and enforce an inflation adjustment in collective bargaining, which at least in Germany has hardly been observed so far.

All decision-makers agreed that current market prices, which point to an interest rate hike next year, are unfounded, reported people familiar with the discussions.   

Bundesbank expects inflation of more than 5 percent for November

In the meantime, the Deutsche Bundesbank, which had previously written in its monthly reports that inflation in Germany would move "in the direction of 5 percent" over the course of the year, has apparently also revised its expectations a little upwards.

Bundesbank chief economist Jens Ulbrich writes on the news service Twitter that the inflation rate in Germany is likely to rise to more than 5 percent in November.

At the moment, the base effect from value added tax, which was lowered in July last year and raised again at the turn of the year, is around 0.75 percentage points on the German inflation rate of 4.5 percent.

This effect will disappear with the turn of the year.

However, the weight adjustment in the Harmonized Consumer Price Index, which was made prematurely due to the Corona crisis, is currently dampening the core rate of inflation by around half a percentage point.

However, this is only a temporary effect.

“The latter effect will decrease significantly in the next month and drive headline inflation to over 5 percent,” writes Ulbrich.