Inflation is blowing in Germany, Spain. Started a year ago on Money Printing, NIRP, Supply Chain Chaos. War threw gasoline on a fire that was already raging


Double-digit inflation is already raging in several European countries.

By Wolf Richter for WOLF STREET.

Consumer price inflation in Germany started to climb in January 2021, more than a year before Russia’s invasion of Ukraine has already reached 6.0% in November 2021. And energy costs have also increased for a year.

And in March, consumer price inflation jumped 7.6% from March 2021, according to preliminary estimates from the German statistics agency. Destatis, based on the harmonized method of Eurostat. Russia’s invasion of Ukraine has added fuel to the fire that began to rage a year ago.

The Eurozone is one of the places where a crazed central bank is inflicting negative policy interest rates, and therefore negative bond yields, and increasingly negative interest on bank deposits, the economy and households . The ECB left its negative interest rate (NIRP) policy unchanged at its last meeting, with its deposit interest rate still at -0.5%, and it continues to buy bonds.

The ECB’s policies are incomprehensibly reckless in light of inflation which began to explode in January 2021.

But rate hikes – far too timid, far too late – are now being seen later in 2022. And the ECB has already cut its bond-buying program significantly and will cut it further.

On a month-to-month basis consumer price inflation in Germany is up 2.5% (30% annualized!). The two figures for inflation, 7.6% year-on-year and 2.5% month-on-month, swept away the already exorbitant expectations that economists had dared to nurture.

According to the German method of calculating inflation, consumer prices rose 7.3% from a year ago, the highest since 1981, according to Destatis.

The agency cited energy costs (+39.5% year-on-year) and “delivery bottlenecks” which caused an overall rise in goods prices of 12.3 %. Food prices jumped 6.2%.

In Spainconsumer price inflation rose 3.0% in March from February (36% yoy!) and 9.8% yoy, the highest since May 1985, according to preliminary estimates from the Spanish statistical agency INE today.

But that spike took off in March 2021 and by December 2021 was already at 6.5%, the highest since 1990. The war in Ukraine that caused further spikes in already rising energy costs made it even worse:

For February, three European countries had already recorded double-digit year-on-year inflation: the Czech Republic (10.0%), Estonia (11.6%) and Lithuania (14.0%), Belgium n not far behind (9.5%). March is looking much worse.

The central bank of the Czech Republic, which is not part of the euro zone and can still determine its own monetary policies, has already raised its key rate four times, from 0.5% in July last year to 3.5% at its last meeting in February.

And for some much-needed humor on inflation: in Turkey, which is not in the EU, Erdogan embarked on the massive destruction of the lira by firing recalcitrant central bank leaders and replacing them with rate cutters, and they cut its policy rate by 5 percentage points to 14%. And inflation has now soared to 54% from 16% a year ago.

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