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Inflation: new flare-up in Europe. What will the ECB do?

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Blaze of inflation also in the euro area. The inflation rate in the euro area it rose to 5% in December 2021, up from 4.9% in November.
This is a significant leap forward compared with -0.3% a year earlier. This was announced by the Statistical Office of the European Union, Eurostat, explaining that the figure confirms the flash estimate of January 7 and is a new high in 25 years, since the start of the calculation of the time series in 1997. For the whole of 2021, inflation in the euro area stood at 3, 2% in 2022.

EU inflation in December was 5.3% (5.2% in November, 0.3% a year earlier) compared to 5.2% in November. A year earlier, the rate was 0.3%. In Italy it was 4.2% (as per the flash estimate, it was 3.9% in November, -0.3% a year earlier). Lower rates for Malta (2.6%), Portugal (2.8%), Finland (3.2%).

Highest in Estonia (12%), Lithuania (10.7%) and Poland (8%).
In December, the largest contribution to the euro area annual inflation rate came from energy (+2.46 percentage points), followed by services (+1.02 pp), non-energy industrial goods (+0 , 78 pp) and food, alcohol and tobacco (+0.71 pp).

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The spike in prices is not scary the ECB. And in particular, the President of the European Central Bank, Christine Lagarde, which returns to ensure that prices will stabilize and then fall from 2022. Lagarde excludes a change in monetary policy in the short term

“We consider that during the year 2022 (prices, ed.) Will stabilize and gradually decrease over the course of the year”; she said, adding that this decline should continue into 2023 and 2024. For her, a rate hike as the Fed predicts in the US to contain inflation would have dire consequences in Europe. “I hope that monetary policy will be a shock absorber for the crisis and above all not a brake on growth,” said Lagarde.

Economists first see tightening in 2023

If therefore the Fed is preparing to raise the cost of money, when is a similar move expected in Europe? According to a survey released a few days ago by Reuters among a group of economists, official interest rates will remain stable until 2023.

This is despite euro zone inflation looking set to remain at higher levels throughout 2022 than expected a month ago, which could increase the pressure for a tightening of European Central Bank policy once the Omicron wave passes. of the pandemic.

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Inflation forecasts are revised upwards for the seventh consecutive poll, to 4.1% for the first quarter of the year and 3.7% for the second, well above the 2.0% target of the ECB. Prices will then return below the target in the fourth quarter, when inflation estimates are at 1.9% – just below its target.

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