Eurozone inflation has climbed above 4%, returning to levels last seen in September 2023 and running at roughly twice the European Central Bank’s target. With conditions in oil and gas markets unsettled, the source commentary says price pressures are unlikely to ease before at least the spring.
The current inflation wave has risen less sharply than the surge that peaked at 10.6% in 2022, but it is expected to last longer. The commentary says there is agreement within the ECB that further action may be needed in response to the outlook.
Energy is not the only factor contributing to inflation. Investment in computing capacity for artificial intelligence and strong demand for semiconductors are also adding to consumer prices. Expansive fiscal policy may further stoke inflation, with record orders for the defense industry cited as one example.
The AI investment boom is described as inflationary in its current phase, particularly in the United States. Economist Torsten Slok has argued that the Federal Reserve would need to raise its policy rate from just under 4% to nearly 7% to bring inflation back to 2% after more than five years above target. Against this backdrop of price pressures and financing needs, hopes for lower bond yields may be difficult to realize.
Sources: Handelsblatt.