Peak inflation in Europe ‘almost within reach’, says European Central Bank official

Inflation in the euro zone remains well above the ECB’s target, while energy and food prices are soaring.

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Peak inflation “is almost within reach” in the eurozone, a member of the European Central Bank’s Board of Governors told CNBC on Thursday.

The Eurozone has been battling soaring inflation for about a year, with Russia’s invasion of Ukraine adding to these inflationary pressures. In September 2021, headline inflation in the euro area stood at 3.4%, which is a 13-year high. Those numbers have been rising rapidly, however, with headline inflation hitting an all-time high of 10.7% last month.

But an ECB member believes that price growth may be about to slow.

Peak inflation “is almost within reach,” Edward Scicluna, who is also governor of the Bank of Malta, told CNBC exclusively. He warned, however, that there was a lot of uncertainty and that the central bank remained dependent on data.

The European Central Bank releases new economic forecasts in mid-December when it meets for another rate decision. Last September, the central bank forecast an annual inflation rate of 8.1% this year and 5.5% for 2023. The mandate of the ECB is to aim for headline inflation of 2%.

“The fact that the United States and Germany are mentioning the word ‘peace,’ not that it’s happening tomorrow, but that investors are hearing that word, that’s a positive event in itself,” said the senior ECB official, referring to the Russian-Ukrainian war, which could be a possible reason for the slowdown in price increases.

US officials have reportedly urged Ukraine to show it is open to a diplomatic resolution to the conflict. Earlier this week, Ukrainian President Volodymyr Zelenskyy set out five conditions for peace talks with Russia.

All end to the conflict, which began when Russia invaded on February 2. 24, would help with food supplies and prices, for example. In addition, energy prices over the past few months have remained fairly stable and far from their historic peaks observed in August. Soaring energy costs have been the main driver of rising inflation in the Eurozone.

Given historical levels of inflation, the ECB announced three rate hikes this year, taking the main rate from negative territory to 1.5% currently. Market participants have forecast another rate hike for December.

The Governing Council raised rates by 75 basis points in September and October, with markets expecting a 0.5% hike for December.

“As of today, I don’t see a repeat of the previous rate hike,” Scicluna said, suggesting that market expectations are currently in line with some of the thinking within the eurozone central bank.

Earlier this month, ECB President Christine Lagarde said her team needed to keep raising rates despite the economic downturn. “We will have further rate increases in the future,” Lagarde said in an interview with Latvian news outlet Delfi.

In the United States, the consumer price index rose less than expected in October, data showed on Thursday. The latest print suggests that although inflation is still elevated, it may have started to ease.

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