FRANKFURT – Headline Eurozone inflation soared to a new record in March after commodity prices went on a tear following Russia’s 24 February invasion of Ukraine.
Annual consumer price growth in the euro area spiked to 7.5% last month, according to a preliminary estimate from the EU statistics office Eurostat, and the unprecedented level of inflation handily outpaced the market forecast of 6.7% and the upwardly revised mark of 5.9% – the previous record – in February. The cost of unprocessed food in March was 7.8% higher on the year, and energy prices jumped 44.7%, the office said.
Brent crude, for example, was trading as high as USD 124bbl last month. At the same time last year, it was priced at around USD 70bbl.
Core inflation, which excludes energy, food, tobacco, and alcohol, hit a new record of 3.0%. This was less than the market forecast of 3.1% but above the 2.7% high set in February. The annual rate of services price growth increased two-tenths to 2.7% in March, Eurostat said.
“Inflation is set to remain severe for the months ahead,” ING said in a note.
The 10-year German bond yield fell below 0.6% following the news, and the Euro Stoxx 50 gained ground before giving some back as the session continued.
Eurostat reported that four countries in the currency area now have double-digit annual inflation rates: Estonia (14.8%), Latvia (11.2%), Lithuania (15.6%), and the Netherlands (11.9%), where the rate of price growth spiked more than three percentage points in March. Inflation in Spain, the Eurozone’s fourth-largest economy, was close at 9.8%.
Friday’s Eurozone records followed sharp rises in preliminary inflation readings in the currency area’s three biggest economies. March inflation estimates for Germany, home of the largest economy in Europe, rocketed more than two percentage points to 7.6% in March from a whopping 5.5% in the month prior.
On Thursday, France, the second-largest Eurozone economy, said preliminary EU-harmonised inflation jumped to an annual rate of 5.1%, a record high that beat both the 4.8% estimate and the 4.2% mark set last month. Italy, the third-largest euro-area economy, reported headline inflation at 7.0% versus 6.2% in February.
More where that come from
“The question is whether the worst is behind us now and that seems doubtful,” ING warned. “First of all, the immediate developments of inflation are highly conditional on developments in the war. That makes any short-term expectations more prone to error than usual, but our base case suggests an even higher reading in April at least, on the back of lagged developments in consumer food and gas prices. Even a double-digit inflation print cannot be ruled out at this point.”
This puts monetary policymakers in an even worse bind than they were before the Russian invasion. “With Eurozone inflation rising even further above the European Central Bank’s forecast, and likely to remain very high for the rest of the year, we think it won’t be long before the bank starts raising interest rates,” Jack Allen-Reynolds from Capital Economics wrote.
ING said euro area central bankers are unlikely to stray from their forward guidance presented on 10 March, when the bank announced plans to end asset purchases in Q3 if inflation data warranted such a move. ING said, “The ECB is running out of painless options to battle current economic problems, so we expect it to tread carefully. Without signs of higher wage growth that could point to a wage-price spiral starting or de-anchoring inflation expectations, we expect some normalisation of monetary policy in the coming months with an end to quantitative easing in the third quarter and rate hikes in the fourth quarter of 2022 and first quarter of 2023.”
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- Core rate pushes to all-time high
- Ukraine war drives costs
- No relief in sight
- More pressure for ECB rate hikes
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
1 April 2022 | 10:00 GMT
FRANKFURT – Headline Eurozone inflation soared to a new record in March after commodity prices went on a tear following Russia’s 24 February invasion of Ukraine.
Annual consumer price growth in the euro area spiked to 7.5% last month, according to a preliminary estimate from the EU statistics office Eurostat, and the unprecedented level of inflation handily outpaced the market forecast of 6.7% and the upwardly revised mark of 5.9% – the previous record – in February. The cost of unprocessed food in March was 7.8% higher on the year, and energy prices jumped 44.7%, the office said.
Brent crude, for example, was trading as high as USD 124bbl last month. At the same time last year, it was priced at around USD 70bbl.
Core inflation, which excludes energy, food, tobacco, and alcohol, hit a new record of 3.0%. This was less than the market forecast of 3.1% but above the 2.7% high set in February. The annual rate of services price growth increased two-tenths to 2.7% in March, Eurostat said.
“Inflation is set to remain severe for the months ahead,” ING said in a note.
The 10-year German bond yield fell below 0.6% following the news, and the Euro Stoxx 50 gained ground before giving some back as the session continued.
Eurostat reported that four countries in the currency area now have double-digit annual inflation rates: Estonia (14.8%), Latvia (11.2%), Lithuania (15.6%), and the Netherlands (11.9%), where the rate of price growth spiked more than three percentage points in March. Inflation in Spain, the Eurozone’s fourth-largest economy, was close at 9.8%.
Friday’s Eurozone records followed sharp rises in preliminary inflation readings in the currency area’s three biggest economies. March inflation estimates for Germany, home of the largest economy in Europe, rocketed more than two percentage points to 7.6% in March from a whopping 5.5% in the month prior.
On Thursday, France, the second-largest Eurozone economy, said preliminary EU-harmonised inflation jumped to an annual rate of 5.1%, a record high that beat both the 4.8% estimate and the 4.2% mark set last month. Italy, the third-largest euro-area economy, reported headline inflation at 7.0% versus 6.2% in February.
More where that come from
“The question is whether the worst is behind us now and that seems doubtful,” ING warned. “First of all, the immediate developments of inflation are highly conditional on developments in the war. That makes any short-term expectations more prone to error than usual, but our base case suggests an even higher reading in April at least, on the back of lagged developments in consumer food and gas prices. Even a double-digit inflation print cannot be ruled out at this point.”
This puts monetary policymakers in an even worse bind than they were before the Russian invasion. “With Eurozone inflation rising even further above the European Central Bank’s forecast, and likely to remain very high for the rest of the year, we think it won’t be long before the bank starts raising interest rates,” Jack Allen-Reynolds from Capital Economics wrote.
ING said euro area central bankers are unlikely to stray from their forward guidance presented on 10 March, when the bank announced plans to end asset purchases in Q3 if inflation data warranted such a move. ING said, “The ECB is running out of painless options to battle current economic problems, so we expect it to tread carefully. Without signs of higher wage growth that could point to a wage-price spiral starting or de-anchoring inflation expectations, we expect some normalisation of monetary policy in the coming months with an end to quantitative easing in the third quarter and rate hikes in the fourth quarter of 2022 and first quarter of 2023.”