Inflation statistics for May have just been released for all the countries of the Eurozone (EMU) and we will not be afraid of words: this is a real disaster. The numbers speak for themselves. In May, in the European Monetary Union as a whole, year-on-year CPI reached a new all-time high of 8.1%. Unfortunately, the worst is yet to come, which is confirmed by the new record reached by the annual shift in producer prices, a key indicator of inflation. Indeed, in April it reached 37.2%, which indicates (shown in the chart below) that the annual change in consumer prices in the Eurozone may soon exceed 10%.
In Germany, too, slips in consumer and producer prices are historic. This brings the annual turnover of the former to 7.9% in May. The second annual shift, however, rose to 33.5%, indicating that across the Rhine, too, inflation could quickly approach 10%. In fact, high inflation has spread to the entire Eurozone, with the Baltic states approaching hyperinflation of particular concern.
In addition, high producer prices have reached dramatic and historical proportions in almost all countries of the European Monetary Union. Their annual shifts are downright scary: 62.3% for Ireland (after 106.1% in March 2022), 52.7% for Belgium, 49.3% for Slovakia or even 48.1% for Greece. Levels that raise fears of new catastrophic slippages of annual changes in consumer prices.
And even if the inflationary escalation is less powerful in France, in particular thanks to the ban on certain energy prices, the time is also very worrying. Indeed, in May, the annual shift in consumer prices reached 5.2%, the peak since September 1985. By European standards, French inflation reached 5.8%, confirming that inflation in Insee standards is still undervalued. In addition, in April, the annual shift in producer prices in France was 25% by Insee standards and 27.8% by European standards. That’s enough to forecast French inflation of around 8% over the next few months.
To make matters worse, international commodity prices have continued to rise and/or resume their upward trajectory over the past few days. Starting with oil, a barrel of Brent crude temporarily rose to $125 on May 31, before settling between $115 and $120. If the peak of $130 on March 7 has not yet been crossed, it is getting dangerously close, and it is clear that it will not fail to further affect the prices of producers and consumers around the world.
Underlining the sustainability of these inflationary tensions, the CRB price index for all raw materials continued to rise worldwide, weighing them in global consumption. On June 2, this leading global producer and consumer price index reached a high since March 1, 2012, posting a 199% rise since its lowest level in April 2020.
In conclusion, you don’t have to be a rocket scientist to understand that despite some temporary lulls, global inflation will rise again in the coming months. And this, especially in the Eurozone and France, which will require the European Central Bank to act quickly and consistently. It could also create a surprise from June 9, by increasing the refinancing rate from 0.0% to 0.25%. This would send a strong signal and improve credibility, which has fallen to a particularly low level in recent months.
Pending a late and fundamental wake-up call, interest rates on 10-year government bonds continue to tighten in European Monetary Union countries. Some examples: 1.25% in Germany, 1.77% in France, 3.3% in Italy, 3.7% in Greece. Given the past and future spikes in inflation and public debt, the bond market crash is far from over. Fasten your belts!
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Marc Touati, Economist, President of ACDEFI
His new book RESET – What new world for tomorrow? Budget articles have topped the list of bestsellers since its release on September 2, 2020
Find all his videos on his site YouTube channel. Most recently, inflation and purchasing power: can France avoid the worst?
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