Double-digit inflation is already raging in several European countries.
By Wolf Richter for WOLF STREET.
German consumer price inflation started to rise in January 2021, more than a year before the Russian invasion of Ukraine, and reached 6.0% as early as November 2021. And energy costs have also been rising for a year.
And in March, consumer price inflation rose by 7.6% compared to March 2021, according to the preliminary estimates of the German statistical office Destatis based on Eurostat’s harmonized method. Russia’s invasion of Ukraine added fuel to the fire that started a year ago.
The Eurozone is one of those places where a mad central bank is wreaking negative interest rates and hence negative bond yields and increasingly negative interest rates on bank deposits, the economy and households. The ECB left its negative interest rate policy (NIRP) unchanged at its last meeting, the deposit rate still at -0.5% and it continues to buy bonds.
The policy of the ECB is incredibly reckless given the inflation that started to explode in January 2021.
But rate hikes — far too timid, far too late — are now seen later in 2022. And the ECB has already drastically reduced its asset purchase program and will continue to reduce it.
From month to month, consumer price inflation in Germany rose by a horrendous 2.5% (30% on an annual basis!). Both inflation numbers, the 7.6% yoy and the 2.5% mom, shattered the already sky-high expectations that economists had dared to harbor.
Based on the German method of calculating inflation, consumer prices rose by 7.3% year-on-year, the highest since 1981, according to Destatis.
The agency cited energy costs (+39.5% yoy) and “supply shortages” that caused commodity prices to rise 12.3% overall. Food prices increased by 6.2%.
In SpainConsumer price inflation rose 3.0% in March from February (36% on an annualized basis!) and 9.8% yoy, the highest since May 1985, according to preliminary estimates from Spain’s statistics agency INE today.
But that surge started in March 2021 and has already reached 6.5% in December 2021, the highest level since 1990. The war in Ukraine, which caused a further increase in already skyrocketing energy costs, made it worse:
Three European countries had already reported double-digit annual inflation for February: the Czech Republic (10.0%), Estonia (11.6%) and Lithuania (14.0%), closely followed by Belgium (9.5%). March will look even worse.
The Czech Republic’s central bank, which is not part of the euro zone but can still set its own monetary policy, has already raised interest rates four times, from 0.5% in July last year to 3.5% at its last meeting in February.
And for some much-needed inflationary humor: in Turkey, which isn’t in the EU, Erdogan has started the wholesale destruction of the lira, firing recalcitrant central bank governors and replacing them with rate-cutters, and they cut their key interest rate by 5 percentage points to 14% . And inflation has now exploded to 54%, up from 16% a year ago.
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