Inflation blows out in Germany, Spain. Started a year ago with Money Printing, NIRP, Supply Chain Chaos. War fueled already raging fire

Double-digit inflation is already raging in several European countries.

By Wolf Richter for WOLF STREET.

German consumer price inflation started to rise in January 2021, more than a year earlier Russia’s invasion of Ukraine and already reached 6.0% in November 2021. And energy costs had also been rising for a year.

And in March, consumer price inflation rose by 7.6% compared to March 2021, according to preliminary estimates by the German statistical office Destatis, based on the harmonized Eurostat method. The Russian invasion of Ukraine added fuel to the fires that started a year ago.

The eurozone is one of the places where a deranged central bank is imposing negative policy rates, resulting in negative bond yields, and increasingly negative interest rates on bank deposits, the economy and households. The ECB left its negative interest rate policy (NIRP) unchanged at its last meeting, with its deposit rate still at -0.5%, and it continues to buy bonds.

The ECB’s policy is incomprehensibly reckless in light of inflation that started to explode in January 2021.

But rate hikes — way too timid, way too late — are now being seen later in 2022. And the ECB has already slashed its bond-buying program and plans to scale it down further.

On a monthly basis, German consumer price inflation rose by a horrendous 2.5% (30% yoy!). Both inflation rates, the year-on-year 7.6% and the month-on-month 2.5%, blew away the already sky-high expectations that economists had dared to entertain.

According to the German method of calculating inflation, consumer prices rose by 7.3% from a year ago, the highest since 1981, Destatis said.

The agency cited energy costs (+39.5% year-on-year) and “supply bottlenecks” that caused goods prices to rise 12.3% overall. Food prices rose by 6.2%.

In Spainconsumer price inflation rose 3.0% in March from February (36% yoy!), and 9.8% yoy, the highest since May 1985, according to preliminary estimates by the Spanish statistical agency INE today.

But this spike started in March 2021 and already reached 6.5% in December 2021, the highest since 1990. The war in Ukraine, which caused further increases in already rising energy costs, made matters worse:

Before February, three European countries already had double-digit annual inflation rates: the Czech Republic (10.0%), Estonia (11.6%) and Lithuania (14.0%), with Belgium not far behind (9.5%) . March is going to look a lot worse.

The Czech Republic’s central bank, which is not in the eurozone and can still set its own monetary policy, has already raised its key rate four times, from 0.5% in July last year to 3.5% at its most recent meeting in July. February.

And for some much-needed inflation humour: In Turkey, which is not part of the EU, Erdogan has begun the massive destruction of the lira by firing recalcitrant central bank heads and replacing them with rate cuts, and they have cut key rates by 5 . percentage points to 14%. And inflation has now exploded to 54%, up from 16% a year ago.

Do you enjoy reading WOLF STREET and want to support it? Using adblockers – I totally understand why – but do you want to support the site? You can donate. I really appreciate it. Click on the beer and iced tea mug to see how:

Would you like to be notified by email when WOLF STREET publishes a new article? Register here.

Leave a Comment