Consumer prices jumped 5.1 percent from January 2021 and up from 5 percent in December. Inflation data from Germany and France fuelled expectations of a hawkish shift from the ECB, while analysts have updated their forecast for eurozone inflation for January.
Commerzbank rates strategists Rainer Guntermann and Hauke Siemssen warned: “The European Central Bank’s take on more persistent inflation will be crucial tomorrow. “The ECB should find it increasingly hard to justify its ‘look-through’ approach and Lagarde, in all likelihood, will have to answer some tough questions, with the Fed poised for lift-off next month and the Bank of England hiking further tomorrow – therefore, the risk for an accelerated ECB exit is on the rise.”
Markets have rateched up their rate-hike expectations in recent weeks, with at least two rate rises priced in even as the ECB maintains its dovish stance. Once again, soaring energy prices played a major role, rising a painful 28.6%.
Oil prices have spiked as the global economy recovers from the worst of COVID-19 restrictions, while natural gas prices have surged in Europe because of depleted winter reserves, lower supplies from Russia, and fears of a renewed military move by Moscow against Ukraine.
Higher energy bills for consumers have quickly become a political issue in Europe as governments roll out subsidies and tax breaks to soften the blow to household budgets. Higher inflation makes it more expensive for people to buy everything from food to fuel and has been one factor holding back Europe’s recovery.
For example, gasoline prices in Germany have hit a record 1.712 euros per liter, the country’s ADAC motoring association said Wednesday. That is the equivalent of $7.31 per gallon. Economic growth slowed to 0.3% in the eurozone in the last three months of 2021 as coronavirus infections driven by the omicron variant led to new restrictions and deterred consumers from in-person activities such as eating out.
