If we look at the main European economies, we arrive at the following inflation figures:
Highest price pressure
The Eurozone is facing the highest price pressure since the 1970s. Headline inflation reached 7.5% YoY in April (from 7.4% YoY in March). 60% is due to the higher energy prices due to the war in Ukraine. Reliance on energy imports has hit Europe exceptionally hard. The skyrocketing inflation has led to a depreciation of the euro. In the past five years, the difference in value between the dollar and the euro has never been as great as it is today.
The question is how the European Central Bank (ECB) and governments are responding to this situation. It seems certain that the ECB will raise interest rates this autumn. At the same time, an answer will have to be found to the threat of stagflation (persistently high inflation combined with slowing economic growth). There is little that can be done about rising raw material costs with government support.
The course of the war in Ukraine is playing a major role in this. The economic costs of this are leaving their mark on the GDP of the euro countries. For example, the French economy did not grow in the first quarter of this year. Germany is still showing a minimal plus of +0.2%. In this light, it is expected that wage increases will remain limited for the time being. That could change next year if high inflation continues. This puts the spectre of stagflation firmly in the picture.
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