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Inflation hits a new record in Europe. Prices climbed an average of 5.1% in January. Should the European Central Bank act? And how ? Questions that will be fiercely debated this morning at the meeting of the Board of Governors.
The rise in prices is quite weak in the euro zone, we went from 5% in December to +5.1% in January, but it is above all an unexpected increase, the forecasters were counting on the contrary on an easing of prices. There is therefore reason to wonder regarding the strength of European inflation, even if it is well below US inflation today at around 7%.
This is why Christine Lagarde is expected at the turn today. Just a week ago, she said loud and clear that there was no question of raising interest rates in 2022 to quell soaring prices. The one who is now nicknamed “Madame Inflation” by the popular German daily image, is today on the grill.
The President of the ECB is under pressure?
It is independent of governments, which does not mean that it is insensitive to what is said and felt in the euro zone. First of all, there are very different sensitivities within the Board of Governors, the discussions of the morning promise to be animated. And the pressure is mounting outside.
Pressure from German public opinion: according to a poll published at the start of the week, inflation is the number one concern of our neighbors across the Rhine, 70% of Germans are worried regarding it, they are more afraid of price rise than covid or risk of war in Ukraine. And political pressure. The president of the Eurogroup, the Irish Minister of Finance, underlined yesterday that inflation weighed on the purchasing power of households and on growth.
The ECB is supposed to keep inflation at a moderate pace around 2%. It is already twice as strong today.
So there are apparent reasons to act. The euro zone is the only one to maintain its rates at the floor while most of the big moneymakers have started to raise them. This is true in the UK and of course in the US. But Christine Lagarde, like many governors, looks at the components of this inflation and she concludes that in the euro zone it is different: here it is above all the surge in energy that is driving up the average price. And to a lesser extent food prices.
The tensions are largely explained by bottlenecks in the industry. Finally, another key element: there are still no ripple effects on wages, the euro zone is not yet in an inflationary spiral. Raising rates in this context seems pointless and even dangerous. Since this will automatically increase the public debt bill.
This prospect is worrying for the most indebted countries like Italy or France.
A premature rate hike might cause another debt crisis and trigger another recession. This is why the ECB will remain cautious. Beyond its official mandate, the ECB has a tacit mandate to fulfill, that of maintaining the cohesion of a still very disparate economic entity, with very strong countries such as Germany or the Netherlands which manage the cordons of the stock market, and weak links, Italy, Greece, Spain, countries badly shaken by the debt crisis and which absolutely must be taken care of to avoid a new euro crisis.
► IN BRIEF
Big disappointment on the stock market for two net giants, Spotify and Facebook.
Spotify unscrews because of disappointing forecasts, and a contested editorial choice: Joe Rogan’s politically incorrect podcast scares artists from the Swedish music platform. As for Facebook and its parent company Meta, profits for the last quarter of 2021 fell 8%. A slap for the ancestor of social networks. Severe competition from TikTok. The sanction of the markets was immediate: its action tumbled 20% in electronic trading preceding the reopening of Wall Street.
