Inflation in the euro area continues to grow uncontrollably, as evidenced by the data presented on Thursday by the European Statistical Agency.
According to the data, the consumer price index in the eurozone has grown again for the first month in a row, and although the data turned out to be slightly less than the consensus forecast, they showed a noticeable increase in both monthly and annual terms. Consumer inflation in the euro area jumped by 2.4% in March against the forecast growth of 2.5% and the February value of 0.9%. In a year-on-year ratio, the indicator soared to 7.4% against the expectation of growth to 7.5%, which is noticeably higher than in the previous period under review, when the indicator reached 5.9%.
How will the European Central Bank act now in this situation? It is still unclear whether it will ignore reality again. ECB President Christine Lagarde is set to deliver a speech. What will she say? She will evade again, uttering meaningless phrases that "the current conditions in the economy will only get more complicated." Or, after all, it will signal that the central bank will be forced to pay close attention to galloping inflation in the region and start acting already.
In fact, this is a really difficult question. Earlier, we have repeatedly pointed out that the start of the process of raising interest rates against the background of uncontrollably rising inflation will plunge the euro region into a deep recession, which will necessarily affect the economy and the standard of living of Europeans, who are already experiencing noticeable problems amid the escalation of the Ukrainian crisis.
We believe that, with a high probability, the ECB will still have to start raising rates, no matter how much it wants to. Let it not be as aggressive as it is largely expected from the Federal Reserve. We believe that with a very high probability such a decision will already be made in May. Of course, this will contribute to the strengthening of the euro, which does not yet take into account this possibility, for example, paired with the US dollar. In this scenario, the euro/dollar pair may test the 1.1200 mark in May.