Record High Eurozone Interest Rates

Written by Connor Foster | September 17, 2023

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On September 14^th, the European Central Bank (ECB) raised Eurozone interest rates to a record high of 4% from 3.75%. This is the tenth consecutive increase in interest rates that the ECB has implemented with the goal of lowering inflation rates. The hope is that higher interest rates will cause people to buy less, which in turn will drive down the prices for individual items. The high rates of inflation to date have impacted every country across the European Union. Shrinkflation, the phenomenon of smaller product sizes but higher prices, has become the new normal in grocery stores across the EU. Manufacturers have needed to make these adjustments in order to compensate for the increased price of inputs. Carrefour, a large supermarket chain in France has even gone so far as to label which brands are guilty of these changes in order to inform customers buying choices and pressure suppliers to alter prices.

There have been indications from the ECB that this latest increase will allow the EU to return to goal inflation rates. Inflation for 2023 is predicted to be 5.6%, but the interest adjustments are expected to bring inflation down to 2.9% in 2024. If this goal is not reached and another round of interest rate increases is necessary, the ECB will need to be careful to not push the economy into a recession.