But today, inflation has returned with a vengeance and has become a key issue for everyone. Three years ago, in 2019, headline inflation in the euro area stood at a seemingly unshakable 1%. A year later, it even dipped below zero. A mere year ago, as the economy rebounded from the pandemic, headline inflation approached an unprecedented 5%.
And yesterday, for the first time in its history, Eurostat reported double-digit headline inflation of 10.6%, and even more worrisome from our perspective, core inflation (excluding energy, food, alcohol & tobacco) reached an all-time high at 5.0%. What is driving this inflation surge? Of course, there are energy prices and one-off factors (Figure 1).