Eurozone inflation remains well above the ECB’s target, as energy and food prices have risen.
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Eurozone inflation hit a record for the sixth month in a row, raising more questions about how this could happen European Central Bank will react.
Headline inflation in the 19-country region reached 7.5% in April, according to preliminary estimates by the European Statistics Office released on Friday. In March, the number came in at 7.4%.
European Central Bank Vice President Luis de Guindos tried to reassure lawmakers about price hikes on Thursday, saying the eurozone was close to peaking in inflation. The central bank sees price pressures waning in the second half of this year, although energy costs are expected to keep inflation relatively high.
The latest inflation reading comes amid concerns about The ongoing war in the Ukraine war and the subsequent impact on Europe’s energy supply – and how this might affect the region’s economy.
Higher energy prices contributed the most to the inflation rate in April, although it was slightly lower than the previous month. Energy prices rose 38% in April year-on-year, compared to a 44.4% rise in March.
Earlier this week, Russian energy company Gazprom halted the flow of gas to two European Union countries for not paying for the commodity in rubles. The The move has raised concerns that other countries may also be isolated.
Analysts at Gavekal, a financial research firm, said that if Gazprom cut supplies to Germany, “the economic effects would be catastrophic.”
Meanwhile in Italy, the central bank estimates a recession this year if Russia cuts all its capacity The energy supply of the southern nation.
As a whole, the EU receives about 40% of its gas imports from Russia. Low flows can severely harm families, as well as businesses that depend on commodities to produce their goods.
Speaking to CNBC on Friday, Alfred Stern, chief executive of one of Europe’s largest energy companies, OMV, said it would be nearly impossible for the EU to find alternatives to Russian gas in the short term.
“We have to be fairly clear: In the short term, it will be very difficult, if not impossible, for Europe to replace Russian gas flows. Therefore, this could be a medium to long-term discussion … but in the long term Short I think we need to stay focused and make sure that we also maintain European industry, supplying European households with gas.”
Separate data released on Friday also indicated that the gross domestic product (GDP) averaged 0.2% for the eurozone in the first quarter.
Among the member countries 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%). It is registered in Sweden (-0.4%) and in Italy (-0.2%).
Analysts at Capital Economics said that despite the positive first-quarter figure, “we believe that eurozone GDP is likely to contract in the second quarter due to the fallout from the Ukraine war and higher energy prices increasingly affecting real household income and consumer confidence as well. As a lead exacerbating supply-side problems.
Market players are watching carefully how the European Central Bank might react, and some expect a first rate hike as early as this summer. In a note on Friday, Bank of America said the European Central Bank will raise interest rates four times this year and two more times in 2023.