Eurozone's inflation rate rises to record high

Rampant inflation within the European Union, caused by soaring energy prices and the spiraling cost of food, is worrying economists.

The record high of 5 percent for December amounts to the fastest rise in prices since the single-currency zone was founded in 1999.

Economists polled by the Reuters news agency had expected 4.7 percent.

Carsten Brzeski, head of global macro research at ING, told the Financial Times newspaper economists hope the rate goes no higher.

"This should be the peak, but headline inflation will stay elevated, at least until late summer, especially as higher wholesale energy prices are passed through to retail consumers and other parts of the economy," he said.

The eurozone, a monetary union of 19 of the EU's 27 member states, uses the euro for currency and shares economic policy. The eight EU members not currently in the zone have vowed to join it eventually.

The zone - which counts France, Germany, Italy, the Netherlands, and Spain among its members - is one of the world's major economic areas.

The Financial Times said the unexpectedly high inflation rate will put pressure on the European Central Bank, or ECB, to end its monetary stimulus spending more quickly than planned.

The bank set a target of limiting inflation to 2 percent in 2021 but has now revised that to 2.6 percent for 2021 and 3.2 percent for 2022.

Philip Lane, the ECB's chief economist, told the Republic of Ireland broadcaster RTE that 5 percent inflation feels especially high after a long period of ultra-low price growth.

"We do think inflation pressures will ease over the course of this year," he added.

The ECB said prices rose more sharply than hoped for as people began spending again after the lifting of pandemic restrictions, and as shortages caused by supply-chain issues increased demand.

Eurostat, the EU's official statistical division, said the rise was largely down to more expensive food, alcohol, and tobacco. Additionally, energy prices were 26 percent higher in December than a year earlier.

Eurostat said core inflation would be 2.6 percent if energy and food prices were stripped from the equation.

The Telegraph newspaper noted that the United Kingdom, which is not a member of the eurozone, is also seeing sharp price rises because of the high cost of energy and the knock-on effect it is having on food production.

The paper said that, additionally, a planned overhaul of subsidies paid to British farmers designed to help the nation meet its net-zero target could push up food prices, and therefore inflation.

Parliament's public accounts committee said the plan to pay farmers to leave more fields fallow could also increase the UK's reliance on imported food.

Geoffrey Clifton-Brown, the Conservative Party lawmaker who is deputy chairman of the committee, wrote in The Telegraph that a cost-of-living crisis is looming in the UK.

"I do not think the public will thank us if, in a few years down the road, there is either a big increase in prices or worse, a shortage of food," he wrote.

The ECB has made similar comments, noting EU policies to tackle climate change will probably keep energy prices high and could force it to end its pandemic stimulus spending.

Isabel Schnabel, the ECB executive responsible for market operations, said on Saturday, during the annual meeting of the American Finance Association, that the move to a greener low-carbon economy "poses measurable upside risks to our baseline projection of inflation over the medium term".