The First Inflation Data In The New Year From Europe May Show A Decline

After two years of lockdowns, COVID deaths, and rising sentiment and unrest, it was hoped that 2022 would bring some relief. Instead, 2022 turned out to be a difficult year in a year where no gnews would fall very well. We have wars, rising interest rates, rising inflation. Central banks around the world have taken action to combat the high level of inflation, including the ECB. The data is far from the expected 2% and as you can see the fight is not over. Inflation reports from the old continent will be presented next week.

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CPI data

The week between Christmas and New Year's is usually very data-poor, and there were no Tier 1 events in Germany or the Eurozone this week. Spain released flash CPI estimates for December, which showed that inflation continued to weaken. CPI fell to 5.8% from 6.8% and below estimate of 6.0%. Inflation in Spain fell for the fifth consecutive month as energy costs continue to fall. The next week may prove to be more important for the European Union, as the inflation report will appear.

Moreover, reports from Member of UE will be just as important. The ECB will be keeping a close eye on these inflation reports and the data will be an important factor in the ECB's decision on the pace of future rate hikes.

Next Friday, Eurostat will give its first look at consumer prices in the euro area at the end of 2022.

It predicts a decrease in the annual growth rate of basic consumer prices from 10.1% in November to 9.6% in December.

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Source: investing.com

Energy situation

Russian President Vladimir Putin's invasion of Ukraine on February 24 triggered a price shock, sparked an energy crisis and brought supply chains to a halt.

Not to mention thousands dead, millions homeless and a kind of Cold War that pits Russia, with the exception of Iran and North Korea, against the rest of the world.

The high volatility in the markets has persisted since the invasion and there is no end in sight.

In 2021, Europe imported $117 billion worth of energy from Russia, which was about 40% of Europe's consumption of natural gas and 30% of its oil.

It has yet to move away from relying on Russia, leaving European countries struggling to replenish their underground gas reserves for the colder winter months.

Until recently, Europe received large amounts of natural gas from Russia via the Nord Stream pipeline. However, flows were halted in late August when Russia cut off flows to Europe via Nord Stream in response to Western sanctions.

Russia is set to increase diesel exports next month before EU oil sanctions go into effect in February. Fuel deliveries from Russian ports in the Baltic and Black Seas will increase to 2.68 million tons in January.

By February 5, the European Union will ban imports of Russian petroleum products, which it heavily relies on for diesel production. This follows a ban on Russian oil that came into effect in December.

Should a recession be expected?

Recessions in Europe seem inevitable as gas prices rise. Meanwhile, the central banks of Europe and the UK are determined to bring down inflation by continuing to raise interest rates.

While recessions around the world have been suggested, analysts say they will only be mild.

The outlook for 2023 remains uncertain. The war continues. Interest rates will go up until inflation goes down.

Source: investing.com