E.U. Inflation

Good Morning Ladies and Gentlemen

“My policies encourage the hardworking, protect the weak, and punish the lazy. There is no right to government-paid laziness.”

Guido Westerwelle, German politician, Federal Chairman of the FDP 1961 – 2016

Jumping inflation in the E.U.

This year’s second-highest jump in inflation in the European Union (E.U.) occurred in February 2022. In February 2022, E.U. inflation went up by +0.94% versus January 2022. However, the highest month-on-month inflation jump in the E.U. this year happened just one month later. In March 2022, inflation increased by a hefty +2.43%. This was among Europe’s highest month-on-month inflation increases in the past 50 years.

ECB: monetary policy meeting

On September 8, 2022, the Governing Council of the ECB will hold a monetary policy meeting in Frankfurt, followed by a press conference. I expect the ECB to raise interest rates by 0.5%, maybe even 0.75%. Then, on October 27 and December 15, 2022, the Governing Council of the ECB will hold two more monetary policy meetings this year. That gives the ECB the chance to raise base rates three times during the next four months. Nevertheless, analysts, journalists, bankers, augurs and speculators assume E.U. inflation to increase well into 2023.

Base effect

However, with all respect and as I mentioned above, it is essential to understand that the 2.43% March 2022 month-on-month inflation increase in the euro area represents one of the highest month-on-month inflation jumps in the past 50 years. Therefore, I believe it is fair to assume that in Q1 2023, inflation numbers will come down and be it just because of a base effect. The same, Ladies and Gentlemen, applies to the U.S., albeit at a lower base effect level. Consequently, the base rate increases and the expected base effect in Q1 2023 could mean eventually a reduction in the aggressiveness of the central banks’ communication towards the end of this year.

Ladies and Gentlemen   

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Many thanks, indeed!

I wish you an excellent start to the day, a great weekend, and above all and still, peace!

Yours truly,

Stefan M. Kremeth

Wealth Management
Incrementum AG – we love managing assets

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