The annual inflation rate in the Eurozone rose to a record 7.5 percent in April, up from 7.4 percent in March, which was in line with market expectations. The war in Ukraine and sanctions against Russia may have pushed up commodity and raw material prices further, according to preliminary estimates released by Eurostat.
Inflation is now more than three times the European Central Bank's target of 2 percent, which may force action on the ECB to combat such a sharp rise in prices. Thus, the market may soon expect hikes of nearly 100 basis points by the end of this year.
According to the data, prices of food, alcohol and tobacco rose 6.4 percent compared to 5.0 percent in March, non-energy industrial goods rose 3.8 percent compared to 3.4 percent and services by 3.3 percent versus 2.7 percent. Meanwhile, energy prices fell but remained very high at 38 percent versus 44.4 percent. Excluding energy, inflation rose to 4.2 percent from 3.4 percent, and excluding food, alcohol and tobacco to 3.5 percent from 2.9 percent.
Along with rapid price increases in the euro area, we may see slower economic growth. In the three months of 2022, the Eurozone economy expanded at a quarterly rate of 0.2 percent, the smallest since emerging from recession last year and below market expectations of 0.3 percent growth. Growth in Spain (0.3 percent) and Germany (0.2 percent) more than offset the decline in Italy (-0.2 percent), while France's economy experienced stagnation. Preliminary figures from Eurostat show that the war and the associated rise in commodity prices reduced economic growth by 0.1 percentage points, while the European Commission just prior to the Russian invasion had forecast growth of 0.3 percent on a quarter-on-quarter basis.
Coming back to inflation, it is also not letting up in Poland and according to preliminary estimates of the Central Statistical Office, it reached 12.3 percent in April, the highest level in almost a quarter of a century (24 years). According to the publication, the greatest impact was exerted by fuel prices, which grew by over 27 percent y/y, and food prices, which increased by over 12 percent. This, in turn, may cause the National Bank of Poland to raise interest rates again soon, even by 100 basis points, and this still may not be the end of the hike cycle. Thus, the divergence in PLN and EUR interest rates may become even more pronounced in the future. In the long term, it may have a significant impact on the zloty exchange rate.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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