Eurozone: Inflation impact from energy shock – Nordea

Finance

Eurozone: Inflation impact from energy shock – Nordea

Nordeas Group Chief Economist Helge J. Pedersen highlights that Eurozone inflation has risen with higher energy prices but remains well below 2022 levels. He stresses that strong household savings, low unemployment and ongoing investment in infrastructure and defense should cushion growth. Nonetheless, falling confidence indicators and tighter financial conditions pose downside risks if the conflict escalates.

Inflation rises but growth shock limited

“In March, inflation in the eurozone thus came out at 2.5%. This was a significant increase from the month before, when it was at 1.9%, but still far below the level in 2022, when oil prices were even higher than today, and when not least the price of natural gas went completely wild.”

“At that time, it peaked for a short period just under 350 euros per MWh, and the EU had to introduce a maximum price of 180 euros per MWh in almost panic mode. In comparison, the natural gas price in Europe is currently at ‘only’ about 50 euros per MWh.”

“This is high and hits European companies and households, but not necessarily to an extent that leads to a deep economic downturn or calls for fiscal easing.”

“And certainly not when it is taken into account that household savings are at record highs, unemployment is low, and billions of euros are already being pumped into infrastructure projects and not least defense.”

“But of course there is always a risk that things will go worse than expected, and the economies also risk being hit by developments in the financial markets, where the war has also left its mark in the form of falling stock prices and rising interest rates.”