EU under pressure! Inflation climbs to highest level since the Euro was introduced

Inflation for the Eurozone now stands at five percent for December, up 4.9 percent from the month before. For the European Union as a whole, inflation is running higher at 5.3 percent. Soaring energy bills have been by far the biggest driver with costs increasing 25.9 percent year-on-year. In a sign of a broadening base to inflation, food, alcohol and tobacco also saw prices rise.

Dan Boardman-Weston, chief investment officer at BRI Wealth Management, said the EU is experiencing “an inflationary spike that is unlikely to abate for another few months”.

Despite the pressures, the European Central Bank (ECB) has held off any movement on interest rates.

This morning, in an interview with France Inter radio ECB President Christine Lagarde insisted inflation would “stabilise and ease gradually in the course of 2022”.

Ms Lagarde has previously suggested interest rates would not move before 2023, expressing concerns over damaging the Eurozone’s recovery from the pandemic.

The stance has attracted some opposition though with the new head of Germany’s central bank, Joachim Nagel, warning the ECB “must be on alert”.

In Germany, inflation was revealed this morning to be at 5.7 percent

Shane O’Neill, head of interest rate trading at Validus Risk Management, said: “It seems amazing to me that we can have a situation where inflation in Germany is over five percent.

“That’s just not sustainable.

Mr Boardman-Weston suggested factors such as constrained supply and high demand would start to wane meaning “once we reach the spring/summer then inflation will start to fall away”.

He added that the ECB would “want to make sure the impact of the pandemic is diminishing before considering tightening policy”.

Outlook for energy prices has had doubts thrown over it in recent weeks due to tensions with Russia on the Ukrainian border.

Germany has warned it may halt the planned Nord Stream 2 pipeline if Russia invades Ukraine.

The pipeline, which is still awaiting approval by German regulators, would connect Russia to Europe via Germany and stands to provide a major source of natural gas to the continent.


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