The increasingly expensive shopping cart
On the price front comes another nasty surprise. Until a few weeks ago the energy bill was under fire because it turbocharged the cost of living. Now the costs of electricity and gas are collapsing but the slowdown on consumer prices is much less vigorous than expected. – This is because the so-called “core” inflation, ie the index that excludes energy and food, is having a harder time coming down than expected. A sign that the price increases now come from corporate profits (final price increases) and wage increases (contract renewals). Two emergencies for the ECB which recommends moderation to avoid an escalation of prices. So far with little success. A laziness to which Frankfurt, also at the urging of the German hawks, will respond by tightening the credit strings even more. It is no coincidence that the European markets rise by half a point more due to Wall Street’s push than to their own conviction. Let’s try to understand by distinguishing between reality and hopes.
Central banks remain on guard
Hopes say that inflation in Europe in March showed a noticeable slowdown to 6.9% from +8.5% in February. This was caused by the collapse in energy prices. A very striking fall: in March last year they had grown by 44.3% compared to March 2021. Now they have fallen by 0.9%. In Italy, the March price index rose by 8.2% compared to +9.8% in February. Here too the key is the sharp slowdown in energy prices (from +28.2% in February to +10.7%). The stop on the bill is only partially reflected in the trend in the cost of living. Indeed, the core index (excluding energy and food) in the Eurozone had constant growth: In November the index had risen 5%, in December +5.2%, January + 5.3%, February + 5.6% , March – 5.7%.
The situation in Spain and Germany
It wasn’t just the market that brought down energy costs. A decisive contribution came from government interventions on bills. Spain has been adopting the Tope for months, which is nothing but a ceiling on the price of gas and electricity authorized by the EU. In Germany, the regulatory regime was renewed at the beginning of the month. For families, the price of a kilowatt hour of gas is blocked at 12 cents up to 80% of their average consumption, while large industry, starting from January and until the end of April 2024, will pay 0.07 euro/Kw for the first 70% of the gas used in the previous year. Berlin has put 268 billion euros on the plate since September 2021 to protect consumers and businesses. Italy has committed around 20 billion for 2023 to favor the lowest incomes. Now the fruits are coming in terms of lower inflation. From here, however, to say that the fight against the high cost of living has been won, it is easy to say.
The barrel does not believe in recovery
This means only one thing: that the ECB will have to keep rates high even at the cost of sending the economy into recession. An eventuality that is already a certainty on the oil market. In the first quarter the quotation fell by 8%. The bets on China’s recovery were not enough to revive it.