Eurozone faces biggest price pressure since 1970s

Headline inflation was at an annualized rate of 7.5 percent in April (up from 7.4 percent y/y in March), with energy cost-related inflation accounting for nearly 60 percent. Europe was particularly hard hit given its increased reliance on energy imports and the recent depreciation of the euro to a five-year low against the US dollar. A report by Allianz Trade's Economic Research Team shows that inflation has returned to the Eurozone, resulting in the cost of living rising to record high levels.

Beyond the baseline and one-off effects associated with the pandemic, clogged global supply chains are unable to keep up with post-pandemic demand. Additionally, the war in Ukraine and widespread closures due to China's zero Covid policy have further disrupted trade flows and contributed to soaring commodity prices, especially energy. 

"Without the EU embargo on oil and gas imports from Russia, headline inflation is likely to peak in the second quarter of 2022. The dynamics of inflation will depend on the development of energy and food prices, which account for about two-thirds of the current price surge. As the negative base effects recede over time, still elevated core inflation will become a driver of pressure on consumer prices next year. At Allianz Trade, we expect euro area inflation to be 6.5 percent y/y this year and 2.5 percent y/y next year. Core inflation will remain extremely high over the forecast period, averaging 3.0 percent y/y and 2.5 percent y/y – more than double the levels seen in the decade leading up to the Covid-19 crisis," the report reads.

(WBJ)