In March 2023, the level of annual inflation in the eurozone fell from February 8.5 to 6.9%, according to preliminary estimates published on Friday by the statistical service of the European Union.
According to the organization, the growth of consumer prices for goods and services in Europe has been slowing down for the fifth month in a row. Nevertheless, inflation in the region is still 3.5 times higher than the target mark of the authorities (2%) and to date has almost doubled the same indicator in Russia.
As calculated in the Ministry of Economic Development of the Russian Federation, as of March 27, annual inflation in Russia slowed to 4.3%. Moreover, by the end of the month, the value should fall below the target level of 4%, as previously stated by President Vladimir Putin.
"For comparison, of course, this will be lower than in the eurozone countries, which are endlessly waiting for the collapse of the Russian economy and are trying to convince themselves of this, and our partners ... Let us recall again the famous American writer, who once said that rumors of his death are greatly exaggerated. That's the same with regard to our economy," Putin said on March 16 at the congress of the Russian Union of Industrialists and Entrepreneurs.
- RIA Novosti
- © Alexey Maishev
According to Eurostat, among the eurozone states, the lowest levels of annual inflation were recorded in Spain and Luxembourg - 3.1 and 3%, respectively. Meanwhile, in Belgium, Germany, Greece, Ireland, the Netherlands, Portugal, France and Finland, the rate varies from 4.5 to 8%, and in Austria, Italy, Slovenia and Croatia - from 8.2 to 10.5%.
The highest rates of price growth remain in the Baltic countries: in Lithuania the value is 15.2%, in Estonia - 15.6%, and in Latvia - 17.3%.
Return to the goal
Note that in Russia, inflation returned to the target after last year's rush jump. Then the unprecedented sanctions of the West provoked an emotional reaction of the financial market and ordinary citizens, which ultimately led to a sharp rise in the cost of many goods and services. So, if at the beginning of 2022, the annual growth of consumer prices in the country was 8.4%, then in April the value rose to 17.8% - for the first time in the last 20 years.
To normalize the situation, the government took a number of anti-crisis measures, and the Central Bank more than doubled the key rate (from 9.5% to a record 20% per annum). After some time, the actions of the authorities made it possible to slow down the growth of prices.
So, in the summer, inflation in Russia fell below 15%, and by the end of the year it was about 11.9% and continued to slow down in the future. As price pressure decreased, the Central Bank began to gradually lower the key rate. In June, the regulator returned it to the pre-sanctions level of 9.5%, and later brought it to 7.5% per annum.
"The high stability of the Russian economy to sanctions is associated with several factors. This, for example, is a favorable state of affairs in the energy market, preparations for the sanctions blitzkrieg since 2014, as well as successful actions of the government and the Central Bank. With the help of strengthening the ruble, the authorities were able to bring down inflation, and later reduce interest rates and increase the adaptability of the economy as a whole, "Alexei Fedorov, an analyst at TeleTrade, told RT.
It's more expensive
Europe, in turn, also faced a record acceleration of inflation precisely after the sanctions imposed on Moscow. In particular, the rejection of Russian energy resources led to a shortage of energy raw materials in the EU countries and, as a result, to a rush increase in hydrocarbon prices in the first half of the year.
The rise in the cost of energy turned into an even more serious increase in the cost of goods and services, which began to grow in price during the coronavirus pandemic. As a result, if at the end of 2021 inflation in the eurozone was 5%, then in the autumn of 2022, the value at a certain point rose to 10.6% - the highest level in history.
"After abandoning cheap Russian fuel, Europe replaced it with much more expensive raw materials from other countries. Consumer prices are also affected by the shortage of Chinese components, materials and components, as logistics chains have been disrupted due to the pandemic and lockdowns in China. In addition, the cost of fertilizers and animal feed remains high, as a result of which a serious decrease in food inflation in Europe is not yet visible, "Natalia Milchakova, a leading analyst at Freedom Finance Global, told RT.
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- © Monika Skolimowska / picture alliance
In addition, as noted by Alexei Fedorov, the measures of the eurozone authorities to combat the consequences of COVID-19 played in favor of accelerating inflation. So, to support the region's economy during the pandemic, the European Central Bank (ECB) began to actively print money that was not sufficiently provided with goods.
"Thus, the European leadership tried to defeat the coronacrisis. However, in the end, the ECB created an inflationary monster, which has not been able to cope with until now, "Fedorov added.
To curb high inflation, the European Central Bank, like the Russian regulator, decided to move to raise the interest rate. Although earlier for a long period the ECB held the bar near the zero mark, in 2022 its sharp increase began.
In total, over the past year, the base rate in the eurozone has already been raised six times, and now it is 3.5% per annum. The achieved value was the highest since the global financial crisis of 2008.
Let us explain that traditionally, tightening monetary policy is considered one of the main tools in the fight against price increases. Due to the increase in interest rates, borrowed money becomes more expensive for citizens and businesses, consumer and business activity weakens, which puts pressure on inflation.
Since the growth rate of consumer prices in the eurozone has already begun to slow down, but still significantly exceeds the target, the ECB intends to continue raising the rate in the near future. However, according to experts, such actions of the European regulator are becoming increasingly risky for the economy of the region.
Between Two Fires
According to Alexey Fedorov, over the long years of ultra-low interest rates in Europe, a large number of enterprises have accumulated that are unprofitable under normal monetary conditions. In this regard, further tightening of the ECB's monetary policy risks turning into difficulties for a number of companies. Moreover, a similar problem is observed today in the United States, the expert added.
"Europe and the United States are faced with a hopeless situation. If inflation is not returned to the target of 2%, but stabilized around 3-4%, then the rates will still be too high, which sooner or later will provoke a strong economic downturn. Moreover, the recognition of the impossibility of reducing inflation can undermine the status of the euro and the dollar as the two main reserve currencies. If we still try to return inflation to 2% and continue aggressive rate hikes, this will exacerbate the problems of the financial sector, "Fedorov explained.
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- © Caroline Purser
A sharp increase in interest rates in the United States to combat inflation has already led to the collapse of three large American banks - Silicon Valley Bank, Signature Bank and Silvergate Bank - with total assets of almost $ 331 billion.
Although Washington announced a stable situation in the banking sector and announced large-scale measures to support the financial system, news of the collapse of several large companies provoked panic among citizens. The population began to massively withdraw money from deposits, and the value of shares of a number of financial organizations fell sharply.
This was followed by the collapse of stock quotes in Europe. As a result, for example, the second largest bank in Switzerland, Credit Suisse, founded in 1856, was on the verge of bankruptcy and was eventually absorbed by the country's largest financial holding UBS.
"Europe has enough of its own troubled banks, and although the Swiss authorities boast that the troubled Credit Suisse was quickly saved, this rescue was the result of direct subsidies from the state budget issued for the purchase of the bank. Whether the European Union has enough funds to help all its banks, which could potentially have problems due to high interest rates, remains a big question, "concluded Natalia Milchakova.