Women with protective face masks pose for a picture in front of the Eiffel Tower.
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Eurozone inflation reached a new record high in December, raising several questions about the European Central Bank’s monetary policy.
Preliminary data showed on Friday that the overall inflation rate came in at 5% for the month, compared with the same month last year. The figure represents the highest ever on record and follows November̵[ads1]7;s all-time high of 4.9%.
The increase was mainly due to higher energy prices.
“After reaching 5.0% in December, headline inflation in the eurozone should fall this year as the energy component plunges,” Capital Economics said in a note on Friday.
Inflation has been in the spotlight after subsequent increases in recent months, with money managers discussing whether the European Central Bank should take a more aggressive stance to combat rising prices.
The central bank said last month that it would cut its monthly asset purchases, but vowed to continue its unique level of stimulus in 2022.
“Monetary accommodation is still needed for inflation to stabilize at the 2% inflation target over the medium term,” the ECB said at the time.
The forecasts, updated in December, estimate overall inflation at 1.8% in both 2023 and 2024. It expects the interest rate to exceed the bank’s target in 2022, but will reach 3.2%.
Economists claim that the pandemic and inflation are among the biggest risks to economic performance in 2022.
“If inflation continues to jump and persistent upside surprises, central banks may be forced to step on the brakes,” analysts at Berenberg said Friday in their global outlook for the new year.
They added that the ECB could prepare the ground for a first hike in the spring of 2023.
The euro rose 0.2% against the dollar and traded around 1,131 dollars in the middle of the morning in Europe.