The increase in the prices of energy, raw materials and foodstuffs, which sharpened with the outbreak of the war in Ukraine, contributes to push upwards German inflation which in March reached its highest levels since 1974. German inflation peaked in 48 years of 7.3% yoy in March, from 5.1% yoy in February. Indications well beyond expectations, which stood at + 6.3%.
The alarming figure for Spain had also arrived today, with inflation just a stone’s throw from the double digit (+ 9.8% in March) always under the pressure ofrising prices for electricity, fuel, food and soft drinks. Today the Spanish Prime Minister Pedro Sanchez told the Spanish parliament that 73% of the price increases were due to the disruptions in the energy and agricultural markets caused by the war in Ukraine.
Tomorrow Istat will release the preliminary data for March on Italian inflation. The consensus sees a further acceleration to + 7.2% yoy from 6.2% last month.
Double-digit inflation by summer?
The increase in bullish price pressures is no surprise. What transpires from the German data is that inflation gallops more than expected and the peak does not seem to have been reached. “The fact that German headline inflation was about to rise further was a fact. The only question was how high, ”he remarks Carsten Brzeski, economist of Ing. “Looking to the future, with the war in Ukraine and the continuing tensions and upward pressures on energy, raw material and food prices, headline inflation in Germany will accelerate further in the coming months”, asserts Brzeski, who adds: “The transition all types of sectors are in full swing and it is difficult to see a significant drop in inflation anytime soon ”.
Ing expects German inflation this year on average to exceed 8% with the possibility of monthly inflation rates entering double-digit territory in the summer.
The stagflation dilemma for the ECB
The escalation of prices inevitably increases the pressure on the ECB in its path of normalization of monetary policy. Inflation is shaping up ‘much higher for longer’ and the increasingly concrete risk is of a stagflation scenario. The attention of the ECB, as well as that of the Fed overseas, is increasingly shifting to inflation rather than growth. “However, just as the ECB has been unable to do anything to get Asian containers to Europe more quickly and cheaper or to increase microchip production in Taiwan,” there is very little the ECB can do to stop the war or to lower energy prices“, Explains Ing who expects the end of the so-called unconventional measures in the next 12 months, ie the end of net asset purchases and the end of negative deposit rates.