Inflation, fueled by soaring oil and gas prices, has hit record levels in Europe for the third straight month. Consumers who cook and heat with gas pay almost twice as much as a year ago. The price spiral on the oil exchanges continues to spiral upwards.
In the 19 euro countries, consumer prices rose by 5.1 percent year-on-year in January, according to the statistics agency of the European Union Eurostat.
At the top is Lithuania with +12.2 percent, followed by France with +3.3 percent – in Germany consumer prices rose by 4.9 percent. The euro figure broke records of 5 percent in December and 4.9 percent in November and was the highest since records began in 1997. Energy prices rose by 28.6 percent, food and luxury goods were 3.6 percent more expensive than a year ago.
This is fueling fears among consumers – economists estimate that they will have to live with higher inflation for longer. Because the driving forces are still there: Oil prices have risen as the global economy recovers from the tightest of COVID-19 restrictions. Natural gas prices in Europe have soared on the back of depleted winter reserves, reduced supplies from Russia and fears of Moscow military action against Ukraine.
CONSUMER FEAR
In a survey commissioned by the credit agency Schufa, 44 percent of consumers stated that they were unable to maintain their standard of living. 28 percent of those surveyed fear that it will become increasingly difficult for them to make a living.
According to a survey published by the management consultancy Simon-Kucher & Partners, 54 percent of consumers felt they could afford less last year than in 2020. Low earners were particularly hard hit: two thirds of those surveyed had a net household income of less than 1,500 euros complained about declining purchasing power.
ECB DECLINES
The European Central Bank (ECB) – which is targeting two percent inflation in the medium term – sees the rising prices as being driven primarily by special factors and expects the inflation rate to fall over the course of the year (to 1.8 percent in 2023 and 2024). As a result, European Central Bank President Christine Lagarde said it was “very unlikely” that the bank would raise interest rates this year — the typical central bank antidote to excessive inflation. Transitional factors include shortages in the supply of parts and raw materials, as well as comparisons to extremely low energy prices during the worst of the pandemic crisis. These “base effects” would disappear from inflation statistics over time.
CONTRARY TO THE FED
Analysts say markets will be alert to changes in the bank’s outlook – the ECB’s stance stands in stark contrast to that of the US Federal Reserve. Financial markets are speculating that interest rates will rise this year – the US Federal Reserve could face announced a series of rate hikes as early as March, with inflation at a 40-year high.
see below with dpa
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