Euro Zone Price Spike Seen Surging Higher in Second Month of War

h}{io02gq26{o}rjw59db8d)_media_dl_1.png Eurostat, Destatis, Insee, Istat

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(Bloomberg) — Euro-zone inflation probably jumped in April to the highest in 2 1/2 years as fallout from the Iran war squeezed economies across the currency area. 

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Annual price growth of 3% is what analysts now forecast for data scheduled to arrive on Thursday, according to the median of 28 predictions. That would intensify the pressure on consumers after a jump in March that was the most since the 2022 outbreak of war in Ukraine.

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The new reading would be a whole percentage point above the European Central Bank’s 2% goal, underscoring how sharply the Middle East conflict, and the snarl-up of energy supplies centered on the Strait of Hormuz, is impacting households and businesses in the euro zone.

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The outcome will arrive just hours before the latest decision of policymakers in Frankfurt, when they may hold off on an interest-rate hike in tandem with peers from across the Group of Seven. Euro-zone officials want to avoid a move before their June meeting, when new quarterly forecasts will be available to them. 

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What Bloomberg Economics Says…

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“Inflation in the euro area will likely accelerate again in April, driven by higher energy costs. Bloomberg Economics expects the price increases to be broadly in line with the baseline scenario of the ECB’s staff economists. That, together with the month’s weaker-than-expected PMI data, cast doubt on the aggressive monetary policy tightening being priced in by financial markets.”

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—Simona Delle Chiaie and David Powell. For full Preview, click here

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As with the rest of the region, Germany — Europe’s biggest economy — is seeing the energy shock playing out as a hit both to growth and inflation. 

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Its own price gauge due on Wednesday may show an annual increase of 3.1%, while growth is seen to have slowed to 0.2% in the first quarter, which ended with the first month of war. Those latter data come on Thursday, though they may prove only a prelude before the full impact of the conflict hits the economy. 

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“It’s a textbook case of stagflation,” Clemens Fuest, president of Germany’s Ifo institute, told Bloomberg Television on Friday, who added that the central bank response isn’t easy to tailor. “They now face the trade off between letting inflation happen, and making the downturn worse by increasing interest rates.” 

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For the region as a whole, the gross domestic numbers — also due for Thursday — may reveal expansion holding at 0.2% during the first quarter. Along with Germany, every major economy in the euro zone is expected to have shown growth, led as usual by Spain. 

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—With assistance from Francine Lacqua, Mark Schroers and Nick Heubeck.

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