A startling new jump in consumer prices in Europe signals that inflation remains stubborn, despite slowing growth, complicating policymakers’ efforts to steer economies through a difficult winter and possible recession.
The New York Times reports that consumer prices in the 19 countries that use the euro as their currency rose at a record annual rate of 10.7% in October, according to the European Commission October 31. In September, the rate was 9.9%. Twelve months ago, it was 4.1%.
The relentless upward march sharpens the tough choices facing Europe’s elected leaders and central bankers. Reiterating its determination to halt the rise in prices, the European Central Bank last week announced it was raising interest rates by three-quarters of a percentage point for the second time in a row. Until September, the bank had not instituted such a big increase since 1999, in the very early days of the eurozone.
But there are growing concerns that efforts to corral inflation by making borrowing and mortgages more expensive will accelerate countries’ slide into recession, choking off investment and increasing unemployment.
As the International Monetary Fund recently warned: “European policymakers face severe trade-offs and tough policy choices as they address a toxic mix of weak growth and high inflation that could worsen.”
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