On April 1, 2022, Eurostat released data showing that the euro zone's harmonized consumer price index (HICP) rose by 7.5% year-on-year in March, and the core HICP rose by 3.0% year-on-year, up 160 and 30 basis points respectively compared with February. At present, due to the conflict between Russia and Ukraine disrupting the global supply chain and boosting energy prices, inflation in the eurozone has accelerated to an all-time high, and the economic recovery is full of uncertainty. Mainly focus on the following three points.
First, rising energy prices have pushed inflation in the eurozone higher. In terms of sub items, energy and food led the rise. In March 2022, the year-on-year growth rate of energy prices in the euro area was the highest, with an increase of 44.7% (32.0% in February), up 12.5% month on month; Followed by food, alcohol and tobacco, with a year-on-year growth rate of 5.0% (4.2% in February); Non energy industrial products (3.4%, 3.1% in February) and services (2.7%, 3.1% in February) had the smallest changes. Among them, energy accounted for 10.9% of the adjusted CPI, which has driven the adjusted CPI to rise by 4.9% year-on-year (Table 1). It can be seen that the main driving factor of high inflation in the eurozone is the rise of energy costs. From the perspective of countries, Germany, Spain and Italy have strong upward momentum of inflation. In the context of geopolitical crisis, the supply chain of Russia and Ukraine to Europe was blocked, especially the exports of bulk commodities such as energy and wheat fell sharply or even blocked, leading to the rise of price level and inflation expectation. Among them, Germany is highly dependent on Russian energy products, with more than half of its natural gas, half of its coal and about one-third of its oil imported from Russia. Affected by the conflict between Russia and Ukraine, the momentum of rising inflation is relatively strong.
Second, short-term high inflation has led to difficulties in the economic recovery of the eurozone. From the manufacturing index, affected by the intensification of the conflict between Russia and Ukraine and the continuous rise of inflation, the economic growth of the eurozone is weak. According to S & P global, the final value of manufacturing PMI in the eurozone in March was 56.5, down 1.7 from February 2022, a nearly 14 month low (Table 2). Among them, the PMI index of the Netherlands, Germany, Italy, Greece and Spain fell to a new low in recent 10 months, and the recovery of manufacturing industry was weak. From the perspective of economic climate index, the pessimistic expectations of producers and consumers in the eurozone on the economic outlook have increased, and investment and consumption have been weak. On the one hand, the volume of investment transactions fell sharply due to rising energy costs, blocked supply chains and rising inflation. According to Dealogic, a global data processing company, the global M & a transaction volume in the first quarter of 2022 was US $1.01 trillion, a sharp decrease of 29% year-on-year. Among them, the volume of M & A transactions in Europe decreased by 25% to US $227.67 billion, and the euro area investment confidence index fell to - 7.0. On the other hand, geopolitical tensions have intensified, leading to serious damage to consumer confidence. In March 2022, the euro zone consumer confidence index fell to - 18.8, down 9.9 from February 2022. Among them, the German consumer confidence index fell to - 12.7, down 7.1 from February 2022.
Third, the risk of stagflation is rising, but it is difficult for the European Central Bank to "aggressively" raise interest rates. At present, high energy prices weaken consumption and damage enterprise investment, further dragging down the economic growth of the eurozone. According to the estimation of the European Central Bank, the economic growth in the first quarter of 2022 is positive, but it can only be achieved reluctantly, while the economic growth in the second quarter will be close to zero. This shows that the eurozone is approaching stagflation, that is, rapid inflation and stagnant growth coexist. In this context, the European Central Bank may adjust monetary policy. In the short term, the eurozone will not tighten monetary policy quickly. Inflation in the euro area is mainly caused by supply chain shocks and has not yet been transmitted to wages. In March 2022, the rise of wages in the euro area was relatively limited, and there was no obvious sign of price wage spiral in Germany and France. In the long run, the ECB may raise interest rates slightly during the year. According to the minutes of the monetary policy meeting in February, the European Central Bank will not tighten monetary policy prematurely and will withdraw from the asset purchase plan (APP) as soon as the third quarter of 2022. However, affected by high inflation, the presidents of the central banks of Austria and the Netherlands have explicitly called on the European Central Bank to start raising interest rates. According to market expectations, the European Central Bank will raise interest rates by 60 basis points by the end of 2022.
