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Runaway Eurozone Inflation Starting in Mid-2021 Will Set New Records and Wake Up Even the Ridiculously Reckless ECB

A “temporary” inflation is a sudden runaway inflation. But the stupidity of negative interest rates and quantitative easing is finally over.

Written by Wolf Richter for WOLF STREET.

Eurozone inflation jumped to 9.1% in August, a new record for eurozone data dating back to 1997, according to preliminary data released today by Eurostat. It was highest in Estonia at 25.2%. Germany posted a record 8.8% of her.

This inflation spike began suddenly Early 2021, after years of ECB money printing that went mad during the pandemic, and after ridiculous years of ECB negative interest rates. For years it seemed like the ECB could implement these policies without triggering runaway inflation, but suddenly in early 2021 the dam burst and inflation rushed to the land.

By July 2021, Eurozone inflation will exceed the ECB’s 2% inflation target. By August 2021, inflation has reached 3.0% and is rising.

At the time, the ECB regurgitated the Fed’s claim that this inflation was temporary, continuing its negative rate idiocy without hesitation and printing money in reckless abandon.

Energy prices had already started to skyrocket in January 2021. From early January 2021 to December 2021, oil prices have jumped more than 50%. It was a big price increase.

By January 2022, just before Russia invaded Ukraine, eurozone inflation soared to 5.1%. It jumped to 5.1% in Germany and 8.5% in Belgium. Two Baltics already had him in double digits. After years of global money printing and curbing interest rates, inflation had become a global problem.

Most of the 9.1% inflation rise occurred before Russia invaded Ukraine. The situation was then exacerbated by skyrocketing energy prices, including natural gas, brought about by Russia’s invasion of Ukraine and sanctions for that war.

Russia’s invasion of Ukraine also affected Ukrainian-origin supply chains, including exports of steel, grain, animal feed, electrical equipment, and auto parts from Ukraine.

For example, European car manufacturers relied on wire harnesses made in Ukraine. But production stopped when Russia invaded. Suddenly there was a shortage of wiring harnesses, further delaying the production of European automakers, further contributing to the shortage of new cars and rising prices of new cars, especially used cars. Secondhand car.

And inflation continues to soar as rising prices spread across the economy.

The government applied various strategies to keep inflation down more or less artificially. And this keeps the CPI lower (9.1%) than it would have been without these measures.

In Germany, for example, the government has cut fuel taxes and in June launched a transport pass program of €9 per month as part of an energy cost reduction package. It was useful not only for the summer travel season, but also for commuting. That program, which contributed to the decline in the consumer price index in June and July, ends today. His CPI in September will have to do without it.

Germany’s CPI hit 6.0% in November 2021, well before Russia invaded Ukraine.

Runaway Inflation by Country in the Eurozone:

Consumer Price Index, August 2022
Estonia 25.2%
Lithuania 21.1%
Latvia 20.8%
Netherlands 13.6%
Slovakia 13.3%
Slovenia 11.5%
Greece 11.1%
Belgium 10.5%
Spain 10.3%
Cyprus 9.6%
Portugal 9.4%
Austria 9.2%
Italy 9.0%
Ireland 8.9%
Germany 8.8%
Luxembourg 8.6%
Finland 7.6%
Malta 7.1%
France 6.5%

Even the ECB sees itself as hosting an inflation freak show.

The ECB has been ridiculously reckless in its quantitative easing and negative interest rate policy. But both are already finished.

QE ended in June and the balance sheet reached €8.84 trillion in total assets. According to the latest balance sheet as of August 26, total assets stood at €8.75 trillion, down €86 billion from the peak.

And the negative rate antics ended on July 21, when the ECB raised its policy rate by 50 basis points from -0.5% to 0.0%.

Yes, it sounds absurd that the central bank would eventually raise the policy rate to 0% to deal with 9.1% inflation. That’s a really bad joke.

But the hike marked the end of the absurd and destructive experiment of negative interest rates. More rate hikes are on the horizon, with a 75 basis point hike scheduled for September. Even the ECB understands, on some vague level, that runaway inflation is a big problem for the economy and the people and businesses within it.

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