Consumer price growth in the Eurozone hit its highest level in more than a decade in September after major economies in the currency area reported significant increases in inflation. The European Union statistics office Eurostat said Friday that preliminary annual headline inflation in the euro-area rose to 3.4% in September, the most in 13 years. Last month’s growth rate beat both the market forecast of 3.3% and the 3.0% reported in August. Preliminary core inflation last month also jumped to its highest level since 2008 with a reading of 1.9%, which surpassed the 1.8% estimate and the August’s 1.6%.

The European Central Bank inflation target is 2% over the medium term, but the bank and a wide range of its officials have repeatedly stated that current price increases are likely transitory.  Eurostat said the annual growth rate for energy prices in September soared to 17.4% versus 15.4% in August. On Friday, European natural gas prices set another record, the second this week. Andreas Wallström, head of forecasting at Swedbank, tweeted: “The high inflation is largely due to extreme base effects (with prices falling a year ago), which will fade over the coming months and in particular as from next year.” But the breadth of the current price push is concerning, noted Carsten Brzeski, ING’s head of macroeconomics. “The surge in headline inflation is still mainly driven by so-called one-off factors such as higher energy prices, the German VAT reversal or price mark-ups post-lockdown in the leisure and hospitality services. 

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House Speaker Nancy Pelosi plans to try again Friday for a vote on bipartisan infrastructure legislation that’s been held up by a battle between moderate and progressive Democrats over President Joe Biden’s economic agenda. Lawmakers will pick up where they left off late Thursday night, when Pelosi sent them home after hours of negotiations failed to produce an agreement in a setback for Biden. Top White House officials had spent the evening shuttling around the Capitol to meet with the warring factions yet fell short of a breakthrough. Progressives are vowing to stall the $550 billion infrastructure bill if the House and Senate don’t first vote on a tax-and-spending package worth as much as $3.5 trillion. That measure forms the bulk of Biden’s agenda and funds a broad expansion of social programs, including child care, elder care and paid family leave. 

Moderates are balking at the overall cost and have argued they should push through the infrastructure bill, which passed the Senate with bipartisan support, while they negotiate the details of the larger measure. The delay Thursday underscored the vulnerability of Biden’s economic plans, with the success of his presidency hanging on the outcome and members of his own party, rather than Republicans, posing the biggest immediate threat. Despite the rift between moderates and progressives, White House officials expressed optimism about the bill’s chances on Friday, when talks will resume. 

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Euro zone manufacturing growth remained strong in September but activity took a big hit from supply chain bottlenecks that are likely to persist and keep inflationary pressures high, a survey showed on Friday. Factories have struggled with logistical issues, product shortages and a labour crunch brought about in large part by ongoing disruptions caused by the coronavirus pandemic which forced governments to impose strict restrictions on mobility. IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) sank to 58.6 in September from August’s 61.4, and just below an initial 58.7 “flash” estimate.

An index measuring output, which feeds into a composite PMI due on Tuesday and is seen as a good guide to economic health, dropped from August’s 59.0 to 55.6. Anything above 50 indicates growth. “While euro zone manufacturing expanded at a robust pace in September, growth has weakened markedly as producers report a growing toll from supply chain headwinds,” said Chris Williamson, chief business economist at IHS Markit. “Supply issues continue to wreak havoc across large swathes of European manufacturing, with delays and shortages being reported at rates not witnessed in almost a quarter of a century and showing no signs of any imminent improvement.”

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Read Full PMI Report Here - IHS Markit