June 30, 2022

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Inflation is at its peak in the United States. What is happening in Europe? The dangers of war and the nightmare of stagflation

Brussels prices run a bit all over, but exposure to war in Ukraine puts theEurope More vulnerable than other world powers. The nightmare of stagflation has returned. in turkey The increase in consumer prices in April approached 70% on an annual basis, the highest recorded among the G20 economies. As the US Federal Reserve decides on monetary tightening unprecedented in more than twenty years and the Bank of England raises interest rates again today despite fears of a recession, the grip of inflation is also being felt in the Eurozone. Among the analysts United State There are those who see the light at the end of the tunnel for the national economy, except for the price, which got out of control as in the seventies: in short, it was already possible to reach the peak. On the Old Continent, on the other hand, the inflation rate will still be trending backwards, especially in light of the new sanctions against Russia affecting energy supplies coming from Moscow, with oil cuts from 2023 – then to coal from August – at the table of the twenty-seven and the ax also hanging on gas flows.

Inflation, Eurostat estimates

Estimates made by Eurostat for April put GDP growth with difficulty and an inflation rate of 7.5%, on the rise (Italy is below average, at 6.6%, between France at 5.4% and Germany at 7.8%; while records are set among the Baltic countries, With Estonia approaching 20%): This number is still driven by exceptional energy costs, up 38% compared to the same period last year. But even core inflation, which does not take into account large swings in energy and shopping cart prices, shows a worrying acceleration, such as indicating that the phenomenon is here to stay and take root in the real economies of the European Union. According to a Bloomberg Reconstruction, markets appear to be betting on a sharp acceleration of inflation in Europe, not the United States.

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Pressure on the European Central Bank

Rising prices and monetary tightening arranged by other major global central banks have renewed pressure on the European Central Bank to raise interest rates as well in the European Union, a move that may wait until the second half of the year, even if the hawks Eurotower’s board wants to decide on this. The connection is already in the summer, pointing to the slogan that the institute’s mandate is to ensure price stability around the symmetric target of 2%: the puzzle that worries Frankfurt is, a record combination of inflation with slow growth, in the wake of the double shock of the pandemic and war. Which would produce an explosive combination: stagflation and stagflation. Raising interest rates can help keep inflation in check, but it risks slowing GDP even more; On the contrary, confirmation of expansionary monetary policy threatens to push prices higher again. The optimistic scenario of a rapid recovery of the world’s economies towards the New Roaring Twenties (the comparison, made by the Financial Times, among other things, with that of the last century, which followed the First World War) quickly faded with the onset of the Russian invasion of Ukraine. It represents a bill to be paid first and foremost to the economies of the old continent most exposed to the repercussions of the war.

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