Food prices do not let up and put more pressure on the ECB

by archynewsycom
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Los prices they are in the eurozone 5.5% higher than a year ago, a general increase that is no longer only conditioned by the most volatile elements of the consumer basket (energy products and fresh food), since the Underlying inflation -which measures the evolution of prices of all the other goods and services that we consume, and is determined above all by processed foods- has been located in the 6.8% in Juneaccording to data published this Wednesday by Eurostat.

Although the general indicator has moderated six tenths to 5.5% -from the 6.1% registered in May-, the problem is that the underlying is still very high and it only moderated one tenth last month, from 6.9% to 6.8%, an alarming level, given that this indicator measures the trend inflation of the economy and serves to intuit how long it will take for prices to fall.

Given that this indicator has not given signs of relief, but rather the opposite, the market assumes that the European Central Bank (ECB) at its next monetary policy meeting next week – on Thursday, July 27 – it will approve a new increase of a quarter of a point in interest rates, up to 3.75%, a strategy that seeks to toughen the financing conditions for families and companies, which will have to tighten their belts, cut consumption and investment, thus cooling the economy and forcing suppliers of goods and services to lower prices.

Its objective is none other than to bring inflation back to healthy ground, that is, to around 2%a level that has not been recorded in the EU since May 2021.

The problem is that the interest rate hikes that the ECB has carried out to date are still have not been effective to contain the price increase. On the one hand, due to the time lag: some time must elapse between the tightening of monetary policy and until this has an impact on the behavior of economic agents and, on the other, because the fiscal policy of the EU member countries is acting in the opposite direction, expansively, which contributes to rising inflation.

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