The 20 years of the euro are celebrated this year under the sign of‘inflation: + 5% in December right in theEurozone. In recent months, the euro zone economy has recovered from the shock of the pandemic and the restrictions on activities have been lifted. But supply struggles to keep pace with demand, causing energy costs to rise and creating a shortage of many raw materials. Eurostat reports that prices have risen by 0,4% compared to the previous month, driven by increases in food, alcohol, tobacco and other goods. Energy prices have increased by 26% compared to the previous year. Thus, inflation in the euro area – as measured by the harmonized index of consumer prices – has exceeded the expectations of economists who had predicted a 4.7 percent increase.
Even the mighty Germany is under stress. The annual pace of price growth in the country was 5.7% in December. The percentage dropped slightly from 6% in November (the highest level since the country’s reunification in the early 1990s). Energy prices rose by 18.3% over the previous year. Berlin’s concern is also linked to a historical reason: the hyperinflation of the 1920s and 1940s wiped out the savings of the Germans. The Nazi party fed on the misery and anger caused by rising prices. We know how it turned out. That’s why in Germany inflation is taboo. Christian Lindner, German finance minister, evaluates the possibility of providing financial aid to the poorest families to compensate for the increase in heating costs during the winter. In practice, Germany would thus put itself in the wake of France, Spain and Italy, which have already pledged to take similar actions.
Meanwhile, the wholesale prices of the natural gas in Europe – after doubling before Christmas – they increased again due to the slowdown in supplies from Russia. Supply chain bottlenecks continue to cause delays and higher costs for manufacturers, driving up the price of many consumer goods. “The rapid shift of rising wholesale costs into retail bills in Spain and, to a lesser extent, Italy, despite government intervention, was the main upside surprise for us in December,” he explains. Morgan Stanley. Philip Lane, chief economist of the ECB, insured to the Irish broadcaster Rte, “That inflationary pressures will ease this year” and that, therefore, “there is no reason to raise rates”. But investors continue to bet that high inflation will force the ECB to raise interest rates sooner than expected.
The German economist Isabel Schnabel, member of the board of ECB for two years, it has consistently been the fiercest criticism of its vast bond buying program. During the annual meeting of theAmerican Finance Association on Saturday, Schnabel clarified that “the need to step up the fight against climate change may imply that fossil fuel prices will have to continue to rise if we are to achieve the goals ofParis Agreement on the climate “. In short, it is probable that the European policies to tackle climate change they will keep energy prices higher, longer: this could force the European Central Bank to withdraw the stimulus faster than expected.
