Local view for "http://purl.org/linkedpolitics/eu/plenary/2008-12-17-Speech-3-393"
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"en.20081217.24.3-393"2
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"Madam President, Mr Medina Ortega, you ask me about the course of inflation in the euro area and its consequences, in terms of how the euro area has reacted.
Over the last 15 months, we have undoubtedly experienced two apparently contradictory processes, but both of them have occurred in our economies. On the one hand, in the period up to July 2008, the euro area economies, all the other European economies and many others besides in both industrialised and emerging countries suffered a severe shock from the rise in the prices of oil and other food and non-food raw materials.
These astounding rises saw the price of a barrel of oil leap to nearly USD 150 in July and the prices of wheat, maize, rice and other raw materials soar to extraordinarily high levels, causing obvious social problems and raising price indices. The euro area had a price index rise of about 4% in June-July this year.
Starting in the summer, the severe economic slowdown – and now recession, in many cases – in major economies throughout the euro area and in the United States and Japan caused an extremely acute negative shock in demand, which can also be seen happening in emerging countries like China, India and others. Raw material prices have now plummeted, so that a barrel of oil must now cost around USD 43 or 45, but the same pattern of a very sharp fall can be seen in the price trends of many other raw materials. As for our price index, Eurostat published the price index for November this morning, showing that the year-on-year inflation rate in the euro area is 2.1%.
Bearing in mind the fact that prices rose considerably in the first half of this year, average inflation in the euro area will be roughly 3% in 2008. I could not tell you the exact figure, but we will find out exactly one month from now. In general terms, however, we can say right now that, for the first time since the euro area has existed as such, namely since 1999, average inflation next year in the area of the 16 euro countries will be less than 2%, which is below the inflation limit defined by the European Central Bank as being consistent with price stability. Indeed, we cannot rule out the possibility that in the middle of the year, in June or July, year-on-year inflation may even be negative, as a result of that sharp rise in oil and raw material prices.
That, however, does not mean that there are no price formation problems. Even in a period of low inflation, resulting from the crisis and the trend in raw material prices, there are still microeconomic problems with price formation. The Commission has just published a communication on food prices, in which we analyse actions that we are implementing to eliminate situations of retail market abuse or malfunction regarding food prices. In the context of the review of the internal market, there is also a whole series of actions announced by the Commission for monitoring markets where prices are not formed properly.
We are thus acting macroeconomically in the areas where we and the Central Bank have competence, and we are also acting microeconomically.
Lastly, you also refer to aspects of external purchasing power. The euro has appreciated considerably against the US dollar and other currencies. In July, the real effective exchange rate of the euro against the rest of our partners’ and competitors’ currencies was extremely high, and there was a clear overvaluation of the effective exchange rate of the euro. Today the situation has returned to more normal levels, which may be regarded as close to what, in an academic or analytical work, might be considered the equilibrium exchange rate for the euro."@en1
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