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Marcus Ashworth

Don’t Panic, Europe. That’s Not Inflation. It’s Just Gas.

Despite the unexpected rise, the ECB will continue its approach even if the ‘hump’ won’t come for a month or two.

Not quite the up everyone expected.

Not quite the up everyone expected.

Photographer: Andreas Arnold/Bloomberg

Ouch. A record high of 5% for euro area inflation in December will cause a few red faces at the European Central Bank, which had been hoping that 2021 had already seen the peak. It was only a 0.1% uptick from the prior month. But the average of a wide range of forecasts was for 4.8%. So it was a miss. But why the consternation? On balance, there is nothing to see here. ECB policy is not going to change.

So be patient and breathe easier. It'll be a month more — or possibly even two — but the “hump” will come soon enough. With energy prices gaining 26% annually, the headline number is subject to a lot of volatility. The important factor is that core inflation,  excluding food and energy, was unchanged at 2.6% from November.