Russia suspended gas supplies to Poland and Bulgaria on April 27, marking a major new change in tensions between Moscow and European countries on key energy supply issues. According to relevant reports, 90% of Bulgaria's natural gas imports come from Russia, and about 50% of Poland's natural gas imports come from Russian natural gas companies every year.
After the news that Russia threatened to cut off the supply of natural gas was released, the price of natural gas in Europe once rose by 17%, but the EU has not stopped offering several rounds of sanctions against Russia, including energy. The market is assessing the risk that other European countries will also be "cut off". In addition, superimposed on the latest news of China's introduction of more economic stimulus measures, oil market traders no longer worried about the possible epidemic closure measures in China. International oil prices fluctuated higher on April 26, with us oil and cloth oil rising 3.21% and 2.61% respectively.
The rising of international oil and gas prices has cast a thick shadow on the prospect of European economic recovery. Obviously, Europe, which is 45% dependent on Russian natural gas, will stimulate inflation due to the soaring international oil and gas prices.
Eurostat data show that the inflation rate in the eurozone reached 7.5% at an annual rate in March, much higher than 5.9% in February, hitting a new record high. Among them, the year-on-year rise of 44.7% in energy prices is the main reason for pushing up inflation; In non EU countries, the inflation rate in Britain reached 7% in March, the highest level in 30 years, and the rising energy prices further pushed up the cost of living of British families. The Bank of England, the Central Bank of England, predicts that UK inflation may rise to double digits by the end of the year. The international community's concerns about the economic prospects of Europe have further increased. European Central Bank President Lagarde said that international geopolitical conflicts further exacerbate inflation, which will reduce the level of economic growth, and the economic outlook in the coming months is "quite uncertain".
Some industry insiders pointed out that 2022 is likely to be a year of stagflation in Europe, or face the simultaneous occurrence of high inflation and low growth. The European Central Bank and European governments are facing a very difficult situation. Raising interest rates has little impact on the price of raw materials determined by geopolitical events, while tightening currency may inhibit economic growth.
Stagflation or stagnant inflation, in economics, especially macroeconomics, refers to the economic phenomenon of economic stagnation, unemployment and inflation rising at the same time. Generally speaking, it means that prices are rising, but the economy is stagnant. This is the result of the long-term uncontrolled and indiscriminate issuance of money by the central bank and the long-term development of inflation. Just like the long-term abuse of antibiotics, it will reduce the immune function of the human body, even produce drug resistance, and finally lead to more diseases.
Once the economy falls into stagflation, any stimulus and interest rate increase policies will have no solution to this situation. Because when dealing with stagflation, the objectives of monetary policy and fiscal policy will conflict: measures to stimulate economic growth will exacerbate inflation; Measures to curb rising prices will put pressure on the economy. Due to the high price of bulk commodities, the price of terminal commodities will rise, and the interest rate increase will not affect the high fluctuation of oil and gas prices in the international market caused by geopolitical turmoil. As Lagarde said, "if I raise interest rates today, it will not reduce energy prices", but it will suppress the recovery of local economy.
Germany's economic data show that it is already in the shadow of stagflation. Germany's economic growth was almost zero in March, but the inflation rate reached 7.3%, which has hit the highest level in 40 years. The latest meeting minutes of the European Central Bank also mentioned that this is a "stagflation shock".
In addition to geopolitical conflicts, Europe's aging population structure and declining aggregate are also one of the risks of boosting stagflation. At present, Europe is facing the problem of population transformation, of which Germany is the most affected. From 2025, Germany's working population will gradually decrease. Due to the slow increase in productivity over the years, technological progress is also difficult to make up for the loss of the working population. However, the reduction of labor force will push up labor wages, which will further push up inflation.
"This [population reduction and aging] is the basis of a long-term stagflation environment," said Timo volmerhauser, director of macroeconomics at the Institute of economics in Munich, Germany He thinks the risk is high. The wage price spiral may have begun.
The latest minutes of the European Central Bank said that "persistently high and higher than expected inflation" was exacerbating concerns about the wage price spiral. The effect may last for a long time or even accelerate.
