For Les Echos, “record inflation in the euro zone, the worst is yet to come”!

For the newspaper Les Echos, which collects this dispatch from the Reuters agency, we are facing new inflation records and the worst is yet to come.

“Eurozone inflation reached a new record high in March and is expected to rise further in the coming months due to rising energy prices, making things even more difficult for the European Central Bank (ECB), which is obliged to react simultaneously to rising prices and slowing growth. .

The consumer price index calculated according to European standards (IPCA) increased by 7.5% annually after +5.9% in February, a figure well above expectations as economists and analysts polled by Reuters forecast a figure of “only” 6.6%”.

The average inflation in Europe is therefore 7.5%, it is considerable, even unheard of since the euro existed.

“Beyond the often volatile energy and food prices, underlying inflation has also accelerated, which risks favoring the ‘anchoring’ of high inflation, a mechanism that is difficult to combat once it is established. active”..

The ECB wants to avoid stagflation.

“A sharp rise in prices is usually a handicap for growth and the ECB expects it to have been slightly positive in the euro zone in the first quarter and close to zero in the second, weighing on the increase in the energy bill both in household consumption and business investment.

Such a scenario would threaten the region with “stagflation,” an economic situation that combines high inflation and stagnant activity.

And that’s where things get “funny”, so to speak, you’ll understand.

What can the ECB do to fight inflation?

Raise the rates!

But when people find themselves ruined by high inflation and no significant wage increases, then they consume less and there is less growth. It is stagflation. If, in addition, the ECB increases rates, then all investments will be more expensive and borrowers will always be less solvent. In short, it will be even more stagflation.

“The institution chaired by Christine Lagarde must also ensure its credibility, undermined last year by its long-reaffirmed discourse on the “temporary” nature of rising inflation.

Therefore, it should tighten its monetary policy as cautiously as possible. While financial markets are currently anticipating a 63 basis point hike in key interest rates by the end of the year, decisions by the ECB’s Governing Council could be much more limited.

An excess of caution on the part of the ECB could force it, if the price increase continues, to tighten its monetary policy more quickly thereafter.

“The inflation figures speak for themselves,” Bundesbank President Joachim Nagel said. “Monetary policy must not miss the opportunity to take timely countermeasures. »

The central bank governors of Austria and the Netherlands, among the more conservative members of the ECB, have repeatedly advocated rate hikes this year to prevent a general rise in prices.

Many people therefore want to raise rates to fight inflation.

We are facing an inflation that is not monetary.

It is linked to geopolitical and physical elements with scarcity of natural resources.

Raising rates will not bring more oil or gas, raising or lowering rates will not bring more wheat.

On the contrary.

If the ECB raises its rates in the current environment, it will not create stagflation but worse, a recession. A great recession with high inflation.

People will be ruined by the millions.

Carlos Sannat

“This is a ‘presslib’ article, that is, free to reproduce in whole or in part as long as this paragraph is reproduced below. Insolentiae.com is the site where Charles Sannat expresses himself daily, offering cheeky and uncompromising analysis of economic news. Thanks for visiting my site. You can sign up for the daily newsletter for free at www.insolentiae.com. »

Source Les Echos.fr here

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