The Core CPI is one of the most prominent economic indicators in the Eurozone. It is measured by tracking the annual changes in the prices of a range of goods and services, excluding volatile items such as food and energy. This indicator is one of the crucial tools that the European Central Bank relies on to understand the underlying inflation in the region and make appropriate monetary decisions.
What is Core CPI?
The Core CPI is a measure used to measure inflation in an economy, excluding goods and services that are highly volatile such as energy and food. These items can significantly affect the inflation index results due to their large fluctuations in global markets. By excluding these items, the Core CPI provides a clearer and more accurate picture of long-term inflation trends, helping policymakers make targeted economic decisions.
In the Eurozone, the Core CPI is calculated on an annual basis. Price data for various goods and services in the Eurozone are collected and then compared with prices in the same period of the previous year. As a result, the index reflects the general trend in prices.
Importance of the Core CPI in the Eurozone
It is one of the main indicators that the European Central Bank relies on to assess price stability within the Eurozone. The central goal of the Bank is usually to keep inflation at a level close to 2% over the medium term. Therefore, the Core CPI is used as a key tool to determine whether inflation is under control or requires economic measures.
Unlike the General CPI, which is heavily influenced by fluctuations in food and energy prices.
the Core CPI shows underlying inflation that reflects changes in the economy apart from the influence of volatile factors.
Factors affecting the Core CPI in the Eurozone
There are many factors that influence changes in the Eurozone. Some of these factors are internal, such as the economic policies of EU member states.
while the index is also affected by external factors such as changes in global energy and commodity markets.
1: Monetary policies of the European Central Bank
The monetary policy of the European Central Bank is one of the most important factors that influence core CPI. For example, when the central bank raises interest rates, this increases the cost of borrowing.
which reduces demand for goods and services and thus contributes to reducing inflation.
2: External factors such as energy prices
Oil and gas prices are a major factor influencing inflation in the Eurozone.
even if they are excluded from the calculation of Core CPI. If energy prices rise in global markets, the total cost of products may rise.
which has a knock-on effect on prices within the region.
3: Labor market and wages
The labor market in Eurozone countries has a significant impact on inflation. When unemployment is low, individuals may start demanding higher wages to keep up with rising cost of living. This increase in wages can lead to an increase in the cost of goods and services.
which contributes to a rise in the core CPI.
4: Fiscal and tax policies
Government policies play a role in influencing inflation. For example, if governments decide to raise taxes on goods and services, this can lead to an increase in consumer prices. Also, if there are changes in government support for different sectors, this can affect local prices.
5: Changes in global supply and demand
Through ongoing influences in the global economy.
such as supply chain crises or changes in global demand, unexpected changes can occur in the prices of goods and services in Europe.
How does the core CPI affect the European economy?
The Core CPI is an important economic indicator that helps assess the stability of the Eurozone economy. When the index is high, it indicates an increase in the cost of living.
which can lead to a decline in the purchasing power of individuals. This can affect consumer spending and thus economic growth.
On the other hand, if the increase in the Core CPI is low, it means that the European Central Bank may be in a position to stimulate the economy by cutting interest rates or taking other measures to support economic activity. In the long term, the European Central Bank seeks to achieve price stability, which contributes to sustainable economic growth.
Core CPI in 2024: Analysis and Forecast
In recent years, the Eurozone has seen fluctuations in the Core CPI due to a range of global economic factors. As 2024 begins, many economic reports have forecast that core inflation in the Eurozone may start to slow.
but it is unlikely to return to the European Central Bank’s target level of 2% in the near future. In the first quarter of 2024, Core CPI in the Eurozone was around 4.3% year-on-year, which is above the target rate.
Key factors contributing to this increase include pressures from energy prices, along with the continued increase in food prices due to global economic conditions. In addition, the recovery from the COVID-19 pandemic and inflation in global markets are expected to impact inflation rates in the euro area.
Outlook for 2024
The core consumer price index in the euro area is expected to remain high in 2024.
but at a slower pace compared to previous years. Prices may begin to gradually stabilize as supply chains improve and energy markets stabilize.
