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Inflation for the Eurozone now stands at five percent for December, up 4.9 percent from the month before. For the European Union as a whole, inflation is running higher at 5.3 percent. Soaring energy bills have been by far the biggest driver with costs increasing 25.9 percent year-on-year. In a sign of a broadening base to inflation, food, alcohol and tobacco also saw prices rise.<\/p>\n
Dan Boardman-Weston, chief investment officer at BRI Wealth Management, said the EU is experiencing “an inflationary spike that is unlikely to abate for another few months”.<\/p>\n
Despite the pressures, the European Central Bank (ECB) has held off any movement on interest rates.<\/p>\n
This morning, in an interview with France Inter radio ECB President Christine Lagarde insisted inflation would “stabilise and ease gradually in the course of 2022”.<\/p>\n
Ms Lagarde has previously suggested interest rates would not move before 2023, expressing concerns over damaging the Eurozone’s recovery from the pandemic.<\/p>\n
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The stance has attracted some opposition though with the new head of Germany’s central bank, Joachim Nagel, warning the ECB “must be on alert”.<\/p>\n
In Germany, inflation was revealed this morning to be at 5.7 percent<\/p>\n
Shane O’Neill, head of interest rate trading at Validus Risk Management, said: “It seems amazing to me that we can have a situation where inflation in Germany is over five percent.<\/p>\n
“That’s just not sustainable.<\/p>\n
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“Germany is obviously the powerhouse of Europe and the longer that maintains the more pressure (Christine Lagarde) will feel.”<\/p>\n
Ms Lagarde has already been the target of German tabloids, earning the nicknames ‘Madam Inflation’ and ‘luxury Lagarde’.<\/p>\n
Mr O’Neill said it would be “surprising” if she remained on the fence in the face of more high inflation figures – predicting she would feel “increased pressure” from European powerhouses such as Germany.<\/p>\n
The main hope for the EU is that inflation will begin to subside as pressures such as gas prices ease.<\/p>\n
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Mr Boardman-Weston suggested factors such as constrained supply and high demand would start to wane meaning “once we reach the spring\/summer then inflation will start to fall away”.<\/p>\n
He added that the ECB would “want to make sure the impact of the pandemic is diminishing before considering tightening policy”.<\/p>\n
Outlook for energy prices has had doubts thrown over it in recent weeks due to tensions with Russia on the Ukrainian border.<\/p>\n
Germany has warned it may halt the planned Nord Stream 2 pipeline if Russia invades Ukraine.<\/p>\n
The pipeline, which is still awaiting approval by German regulators, would connect Russia to Europe via Germany and stands to provide a major source of natural gas to the continent.<\/p>\n