‘My Wallet Shrivels Just Writing This’: Euro CPI Shocker Elicits Incredulity

“That’s a big number.” “Those are pretty ugly prints.”

Those (real) quotes give you a sense of the knee-jerk reaction to the preliminary read on Eurozone inflation for March.

An alarming headline print was a foregone conclusion given the surge in energy prices, but as was the case with eye-watering regional numbers out earlier this week, economists generally failed to anticipate the sheer scope of the surge.

Annual inflation in the euro-area likely jumped 7.5% last month, Eurostat said Friday (figure below). That was up from 5.9% YoY in February. The range of forecasts, from more than 40 economists, was 5.9% to 7.7%. Apparently, just a handful of those projections were revised higher on the heels of this week’s country-specific data.

Core rose too, to 3%. That was actually a bit cooler than consensus expected.

The annual rate of energy inflation in Europe last month was a truly disconcerting 45%, up from an already stark 32% the prior month. Prices for food, alcohol and tobacco (remember, they still smoke in Europe) rose 5%. Services inflation was relatively subdued at 2.7%.

Inflation was double digits in four countries. Six if you round up. Seven if you count the 9.3% harmonized headline print in Belgium.

Plainly, these figures raise questions about the ECB’s inflation forecasts, which in turn suggests markets may push the issue on rate hikes. Christine Lagarde cemented the bank’s hawkish pivot at last month’s policy meeting. This week, she conceded the situation will be difficult in the near-term.

PMIs decelerated slightly this month (figure below). The final read for March on the manufacturing gauge (released Friday) showed a downtick from the flash print.

It’s not stagflation yet, and the ECB generally insists it won’t be, but you’d be forgiven for suggesting that’s where things are headed.

“My wallet shrivels just writing this,” ING’s Senior Economist Bert Colijn said Friday, commenting on the inflation numbers. “The question is whether the worst is behind us now and that seems doubtful,” he added, noting that the trajectory of price pressures from here is “highly conditional on the Ukraine war, mak[ing] any short-term expectations more prone to error than usual.” At the least, ING said, April’s print will be worse.

“The rate of inflation has once again come in considerably higher than expected,” Bundesbank President Joachim Nagel remarked. “We on the ECB Governing Council have been very clear: Monetary policy measures are data-dependent [and] monetary policy should not pass up the opportunity for timely countermeasures.”

ING’s Colijn said it’s not possible to rule out a double-digit print at some point over the next several months. Nagel said simply, “The inflation data speak for themselves.”

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