Eurozone Inflation Reaches 10.7 Percent as Economies Slow Down

Consumer prices in the countries that use the euro as their currency rose at a stunning annual rate of 10.7 percent in October, the European Commission reported on Monday, while economic growth across the continent grew by 0.2 percent over the quarter that spanned July, August and September.

Prices have been on an relentless upward march since last year, as painfully high energy and food prices continued to push inflation to record levels. Over the past 12 months, energy prices rose by 41.9 percent while food prices increased by 13.1 percent.

More than half of the 19 countries in the eurozone recorded double-digit inflation rates in the year through October, including Germany (11.6 percent), the Netherlands (16.8 percent), Italy (12.8 percent) and Slovakia (14.5 percent), with the Baltic countries at the highest end of the spectrum with rates over 21 percent.

In September, the inflation rate across the eurozone was 9.9 percent. Twelve months ago, it was 4.1 percent.

“This is a significant acceleration,” said Lucrezia Reichlin, an economist at the London Business School. “Inflation is becoming broad-based.”

Although economic growth overall slowed from 0.8 percent in the second quarter — April, May and June — some countries registered bigger expansions than analysts anticipated. Germany, Europe’s largest economy, grew by 0.3 percent during the third quarter, driven in part by consumer spending. Italy’s economy grew by 0.5 percent and Sweden’s by 0.7 percent. Elsewhere, growth slowed. In France and Spain, growth increased by just 0.2 percent. Austria and Belgium saw their economies shrink by 0.1 percent.

In the larger bloc of 27 countries that make up the European Union, third-quarter growth also increased by 0.2 percent.

The International Monetary Fund has warned that “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.”

Inflation is vexing many of the world’s economies and may worsen, particularly in the wake of Russia’s withdrawal from an agreement that allowed grain exports from Ukraine that is likely to push up food prices.

Last week, the United States announced that consumer prices rose by 6.2 percent in the year through September, by one measure. Britain’s inflation rate was 8.8 percent over the same period.

Central banks appear resolutely determined to halt the rise. “Inflation remains far too high and will stay above the target for an extended period,” Christine Lagarde, the president of the European Central Bank, said last week after announcing the bank was raising interest rates by three-quarters of a percentage point for the second time in a row.

The International Monetary Fund has also urged central bankers to stay the course possibly through next year. It noted that “almost half the recent surge in European core inflation remains unexplained by its usual drivers,” suggesting that the war in Ukraine and aftershocks of the coronavirus pandemic were contributing to a new inflationary dynamic.

The Federal Reserve is expected to raise interest rates by three-quarters of a percentage point when policymakers meet on Wednesday. It would be the sixth increase this year. The Bank of England, meeting on Thursday, is also expected to raise rates by the same amount.

However painful higher interest rates may be for consumers and borrowers in the United States, the sting is even sharper in other regions around the world. Higher interest rates attract investors, which pushes up the value of the dollar. For emerging nations with high debt bills denominated in dollars, though, their already heavy burden grows even larger. At the same time, nations that have to import American goods or essentials like energy and food that are often priced in dollars, get much more expensive. Those countries get poorer.

While most economists have urged a hard line on inflation, there are an increasing number of voices questioning whether central bankers are going too far, too fast. Higher interest rates are not going to suddenly increase the supply of oil, wheat and microchips, and may even exacerbate shortages by stunting investment.

There is also fear that efforts to corral inflation will accelerate countries’ slide into recession by choking off investment and raising unemployment. Several analysts said on Monday that they expected growth in the final three months of the year to deteriorate.

Andrew Kenningham, the chief Europe economist at Capital Economics, warned in a report that the eurozone “is heading for a deeper recession and higher inflation than most expect.”