Inflation in the eurozone is still well above the ECB’s target, as energy and food prices rise.
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Inflation in the eurozone has reached record highs for the sixth month in a row, which raises further questions about how the European Central Bank will react.
Overall inflation in the 1[ads1]9-member region reached 7.5% in April, according to preliminary estimates from the European Statistics Office published on Friday. In March, the figure reached 7.4%.
European Central Bank Vice President Luis de Guindos tried to reassure lawmakers about rising prices on Thursday, saying the eurozone is nearing peak inflation. The central bank sees price pressure easing in the second half of this year, even though energy costs are expected to keep inflation relatively high.
The latest inflation reading comes amid concerns over the ongoing war in the Ukraine war and the subsequent impact on Europe’s energy supply – and how this could affect the region’s economy.
Rising energy prices contributed most to the April inflation rate, although they were slightly lower than last month. Energy prices rose by 38% in April on an annual basis, compared with an increase of 44.4% in March.
Earlier this week, the Russian energy company Gazprom stopped the gas flow to two EU nations because they did not pay for the goods in rubles. The move triggered fears that other countries could also be cut off.
Analysts at Gavekal, a financial research firm, said that if Gazprom were also to cut supplies to Germany, “the economic effects would be catastrophic.”
Meanwhile in Italy, central bank estimates point to a recession this year if Russia cuts everything energy supplies to the southern nation.
As a whole, the EU receives about 40% of its gas imports from Russia. Reduced flows can hit households hard, as well as companies that depend on the commodity to produce their commodities.
Alfred Stern, CEO of one of Europe’s largest energy companies, OMV, told CNBC on Friday that it would be almost impossible for the EU to find alternatives to Russian gas in the short term.
“We should be pretty clear: in the short term it will be very difficult, if not impossible, for Europe to replace the Russian gas flows. So this may be a medium to long term debate … but in the short term, I think we must stay focused and make sure that we also retain European industry, European households that are supplied with gas, “said Stern.
Separate data, which was also released on Friday, pointed to a GDP (gross domestic product) rate of 0.2% for the euro area in the first quarter.
Among the Member States for which data are available for the first quarter of 2022, Portugal (+ 2.6%) recorded the highest increase compared to the previous quarter, followed by Austria (+ 2.5%) and Latvia (+ 2.1%) “recorded in Sweden (-0.4%) and in Italy (-0.2%),” it says in the release.
Analysts at Capital Economics said that despite the positive figure for the first quarter, “we believe that the eurozone’s GDP is likely to retreat in Q2 as the fallout from the Ukraine war and rising energy prices take an increasing toll on household real incomes and consumer confidence. supply-side issues. “
Market participants are closely following how the ECB can react, and some estimate their first interest rate hike as early as this summer. In a note on Friday, the Bank of America said that the ECB will raise interest rates four times this year and twice more in 2023.