Inflation continues to rise and in June It marks a new record rise to 8.6%, on average, in the eurozone from 8.1% in April, according to preliminary estimates by the European Statistical Office “Eurostat”. Italy’s CPI is also rising: last month it recorded +1.2% in April, reaching 8% annually. The new peak since January 1986When it reached 8.2%. It is even worse in SpainWhere the price index rose by 10% while in Greece it rose by 12%. It is most contained in France (+6.5%), while in Germany the index fell by half a point to 7.6% from 7.9% in May.
Once again, energy prices are fueling the rising cost of living on the continentup 41.9% in June from 39.1% in May. In Italy, the rise in the energy market was more pronouncedwith growth accelerating from +42.6% in May to +48.7% in June, mainly due to regulated energy goods (+64% compared to a 39.3% increase in unregulated energy goods). But accelerating food prices are also contributing to higher inflationwhich grew in the euro area by 8.9% and in Italy by 9.6%, which increased our shopping cart (+ 8.3%).
In this increasingly worrying scenario, The European Central Bank is preparing to raise interest rates by 25 points for the first time in 11 years on July 21. And again, maybe half a point in September. It will be based on data that (for now) does not bode well.
The problem – as Fed Chair Jerome Powell explained in Sintra – is that The risk of losing control of inflation, with the medium-term outlook unfixed, is much worse than the risk of a recession. This is true in the United States, which struggles with a healthy economy and labor market that continues to lose millions of workers each month, forcing companies to raise wages, leaving many jobs exposed.
In Europe, Lagarde’s task is more difficult. The eurozone economy, after the crisis caused by the pandemic, is slowing down compared to estimates made after the launch of the Recovery Fund, which promises resources and investments in exchange for reforms to modernize economies and keep pace with digital transformation and energy. The Russian invasion of Ukraine exacerbated the rise in oil and gas prices. Meanwhile, China’s non-proliferation policy has prolonged supply chain bottlenecks. Therefore, the intervention of the European Central Bank, which is legitimate, is less effective in taming inflation that is not generated above all by excess demand, as is the case in America. At the same time, raising the interest rate can depress the economy and cause a recession. which could arrive in 2023.
Yesterday, investors paid attention to Fabio Panetta’s words rather than the risks of recession and inflation.Member of the Executive Committee of the European Central Bank. In a speech to the European Parliament, the central bank governor argued that work against fragmentation (e.g., widening spreads, ed.), to counteract any excessive market reaction to monetary policy normalization that is only inconsistent with our mandate; necessary for us to fulfill this mandate. And the in interest from all eurozone countries. So not only from Italy. So the day ended with a big drop in European government bond yields, Included BTP, it fell to 3.22% from 3.39% on Thursday, while the spread decreased to 198 points.