Tuesday, February 28, 2023

Inflation in Europe isn't falling

 [From Trading Economics]

[The] annual inflation rate in France rose for a second straight month to 6.2% in February of 2023 from 6% in January, above market forecasts of 6.1%, preliminary estimates showed. Cost increased faster for food (14.5% vs 13.3% in January), services (2.9% vs 2.6%) and manufactured products (4.6% vs 4.5%). On the other hand, inflation slowed for energy (14% vs 16.3%). On a monthly basis, the CPI went up by 0.9%, following a 0.4% increase in January. Meanwhile, the harmonised CPI was up 1% on the month and surged 7.2% on the year.  [France inflation]

The annual consumer price inflation rate in Spain accelerated to 6.1 percent in February of 2023 from 5.9 percent in the previous month, a preliminary estimate showed. The reading came in well above market expectations of 5.7 percent as electricity prices rose again after a fall in January and food prices were higher than a year earlier. On the other hand, prices of fuels and lubricants decreased following the rise in January. The annual core inflation, which excludes volatile items such as unprocessed food and energy, accelerated to 7.7 percent in February, a new high since the end of 1986. [Spain inflation]

[The] annual inflation rate in Germany was confirmed at 8.7% in January of 2023, higher than a downwardly revised 8.1% in December, and pushed by a rise in energy prices after the government's one-off subsidy for energy bills expired in the end of 2022. Cost of energy increased 23.1% and household energy prices 36.5%, namely natural gas (51.7%) and district heating (26%). Prices of firewood, wood pellets and other solid fuels were up 49.6%, and prices of heating oil 30.6%. Electricity cost increased 25.7% despite the electricity price freeze and the abolishment of the EEG surcharge. Cost for motor fuels went up 7%. Meanwhile, food cost surged 20.2%, led by dairy products and eggs (35.8%) edible fats and oils (33.8%) and bread and cereals (22.7%). Compared to the previous month, the CPI surged 1%, reversing a decrease in December.  [Germany inflation]

The moral of the story is that the ECB will keep on raising rates.  It's been cautious so far, because it expected a deep recession to be caused by a severe physical shortage of gas.  Thanks to quick action to secure new supplies (LNG), and very mild weather (thank you, global warming), that hasn't happened.  The European natural gas price has plunged from its post-invasion highs.   And the sustained high rates of inflation have occurred despite falling oil and gas prices.  Two of the world's largest economic zones, the USA and Europe, will keep on tightening.  The third, China, is stimulating its economy.  I expect, on balance, a tightening recession.  We'll see!

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