The Eurozone is in the midst of inflation

of Chrysostomos Tsoufis

The announcement of Spain’s inflation results yesterday at midday drew smiles. The Iberians, against all estimates, saw the country’s Statistical Service announce that inflation for September came in at 9%, 1.5 full units below the August result.

And then the Germans came…

THE German inflation jumped to 10.9% which is the highest value in 70 years.

The smiles among those who argue that we have entered the era of de-escalation have frozen. And of course this particular development does not portend positive announcements from Eurostat, which is expected to announce at 12 noon its first estimate of inflation in the Eurozone.

Analysts’ initial estimate was for 9.7% but after the German shock, a much sharper flirtation with the double-digit rate than 9.1% in August, for the first time in the union’s history, is not ruled out.

With inflation persisting and strengthening, the pressures on the ECB for a more drastic increase in interest rates are intensifying.

Frankfurt has already raised the key interest rate by 125 points (1.25%) in its last 2 meetings, and the voices within the Board of Directors are constantly increasing (the last being the central bankers of Lithuania and Estonia) that the next increase next week should be by 75 basis points. Regardless of the amount of the increase, it is certain that it will not be the only one.

Christine Lagarde has already predicted with her statements about multiple increases until … the beast is tamed…

Aggressive interest rate hikes, however, are killing growth and bringing the Eurozone ever closer to the brink of recession. This is what the markets see and they have…forgotten the color green. Moody’s analysts were the last to warn of a recession in the euro zone.

All over Europe large and small industries are either closing completely or curtailing their activity. Thousands of workers have been suspended or on shift work. In Germany alone in August, lockouts increased by 25% compared to the corresponding period last year.

The organization Business Europe, which represents a section of European employers, raised a cry of anguish.

In its letter to the leadership of the Commission, the organization raises the issue of viability for thousands of businesses if the price of natural gas is not disconnected from that of electricity. It is estimated that already 70% of European fertilizer production has stopped or slowed down while 50% of the total aluminum production capacity has been completely lost.

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