How the pandemic pushed up inflation

Eurozone core inflation came in at 1.6 per cent in August, while headline inflation hit 3 per cent. In Germany, at least, the all-important national metric went up by a notch — to 3.9 per cent.

The recorded inflation data are, to some extent, a bounce-back recovery effect — coupled with the rise in German VAT — which will distort inflation numbers from July until December. But there has been a 2.7 per cent rise in industrial goods, minus energy, which is partly a supply chain effect that could prove persistent. Food, alcohol and tobacco are up 2 per cent but services only 1.1 per cent. It is services that are keeping inflation numbers pinned down — for now, anyway. Interestingly, both France and Italy are registering inflation rates of over 2 per cent.

The governors of the Dutch and Austrian central banks yesterday came out in favour of early tightening, although it’s unlikely that the ECB will have a serious discussion on tightening next week.