Inflation data continued to soar across Europe this month and economic growth was also limited due to the impact of inflation and geopolitics. These two cases have caused household pressure to increase, even more so with the increase in oil prices following the conflict between Russia and Ukraine.
Inflation rates soared to their highest levels in decades in Italy, France, Germany and Spain in March, raising the basic dilemma for investors in establishing a basis for the ECB to curb inflationary growth and at the same time ensure economic growth.
Inflation in Italy hit 7% while inflation in France rose 5.1%, driven by rising fuel and natural gas prices which usually impress low-income householders. The same thing happened to Germany and Spain which finally brought indications that the euro zone inflation will be above 7% in the next three to four months.
Although most of the spikes were due to the price of labour, the European labor market has also become tighter in recent decades, suggesting that basic price pressures are also starting to build up which could force companies to raise salaries soon. Eurozone unemployment fell to a low of 6.8% in February.
Conflict between Ukraine and Russia, which are major grain producers, is also likely to increase the prices of some staple foods. Analysts are of the opinion that the ECB will probably tighten the base modestly following the above factors.
Naib ECB President Luis de Guindos was among those who acknowledged the economic downturn, declaring that the economy would barely expand in the first half of 2022.
Current market analysts are taking a more cautious stance, plus conservative bottom-line traders don't rush rates to increase so quickly.
