Tag Archives: European Central Bank

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Inflation euro zone December 2022 drops as energy costs ease

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Inflation in Europe has been impacted by higher energy prices and supply shortages. Analysts question how far central banks will go to bring inflation under control.

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Inflation in the euro zone dropped for a second consecutive month in December, but analysts do not expect it to spark a change in tone from the European Central Bank.

Headline inflation, which includes food and energy costs, came in at 9.2% year-on-year in December, according to preliminary data Friday from the European statistics agency, Eurostat. It follows November’s headline inflation rate of 10.1%, which represented the first slight contraction in prices since June 2021.

The euro area economy has come under immense pressure in the wake of Russia’s invasion of Ukraine in February 2022, with energy and food costs soaring last year. In an effort to battle rising prices, the European Central Bank increased interest rates four times in 2022 and said it is likely to continue doing so this year. The bank’s main rate currently sits at 2%.

Despite further signs that inflation is easing, analysts say it is too early to celebrate and do not expect a pivot from the region’s central bank.

Interest rates will “get to 3(%) and probably have to hold that all through the year even as the recession becomes more and more evident,” Hetal Mehta from Legal & General Investment Management told CNBC’s “Street Signs” Thursday.

It comes after ECB President Christine Lagarde struck a particularly hawkish tone in December: “We’re not pivoting, we’re not wavering, we are showing determination.” She added that the bank has “more ground to cover.”

The ECB cannot and will not base its policy decisions on highly volatile energy prices.

Carsten Brzeski

global head of macro, ING Germany

Speaking earlier this week, ECB Governing Council member and French Central Bank Governor Francois Villeroy de Galhau said interest rates might peak by this summer.

The ECB also said in December that it will start reducing its balance sheet in March at a pace of 15 billion euros ($15.8 billion) per month until the end of the second quarter. This step is also expected to address some of the region’s inflationary pressures.

At the time, the central bank forecast an average inflation rate of 8.4% for 2022, 6.3% for 2023 and 3.4% for 2024. The bank’s mandate is to work toward a headline inflation figure of 2%.

Earlier this week, data out of Germany showed inflation dropping from 10% in November to 8.6% in December.

Carsten Brzeski, global head of macro at ING Germany, said these numbers “are not a relief, yet, only a reminder that euro zone inflation is still mainly an energy price phenomenon.”

Energy costs have dropped in Europe in recent months. Natural gas prices, for instance, traded at around 72.42 euros per megawatt hour on Friday — sharply lower than their peak of 349.90 euros per megawatt hour in August.

Among inflation components, energy continued to represent the biggest driver in December, but came off from previous levels. Energy costs dropped from 34.9% in November to an estimated 25.7% in December, according to the latest figures.

“The ECB cannot and will not base its policy decisions on highly volatile energy prices. Instead, the central bank will, in our view, hike interest rates at the next two meetings by a total of 100 basis points,” Brzeski said in a note.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, also said in a note this week that he sees “little relief” in the inflation data, “which will keep the ECB on alert at the start of the year.” He expects two rate hikes of 50 basis points in the first quarter.

In terms of national breakdown, the Baltic nations once again registered the highest jumps in inflation, with a rate of about 20%.

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Euro zone inflation hits 10.7% in October

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Inflation in the euro zone remains extremely high. Protestors in Italy used empty shopping trolleys to demonstrate the cost-of-living crisis.

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Euro zone inflation rose above the 10% level in the month of October, highlighting the severity of the cost-of-living crisis in the region and adding more pressure on the European Central Bank.

Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% last month. This represents the highest ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months. But the increases have been accentuated by Russia’s invasion of Ukraine in late February.

This proved to be the case once again, with energy costs expected to have had the highest annual rise in October, at 41.9% from 40.7% in September. Food, alcohol and tobacco prices also rose in the same period, jumping 13.1% from 11.8% in the previous month.

“Inflation surged again in October and are a proper Halloween nightmare for the ECB,” analysts at Pantheon Macroeconomics, said in an email.

Salomon Fiedler, an economist at Berenberg, said the “continuing surge in consumer prices and still-resilient domestic demand in the summer indicate a risk that the European Central Bank may hike rates by 75 basis points in December, rather than the 50 basis points we currently expect.”

Italy’s inflation above 12%

Monday’s data comes after individual countries reported flash estimates last week. In Italy, headline inflation came in above analysts’ expectations at 12.8% year-on-year. Germany also said inflation jumped to 11.6% and in France the number reached 7.1%. The different values reflect measures taken by national governments, as well as the level of dependency that there nations have, or had, on Russian hydrocarbons.

There are, however, euro nations where inflation rose by more than 20%. This includes Estonia, Latvia and Lithuania.

The European Central Bank — whose primary target is to control inflation — on Thursday confirmed further rate hikes in the coming months in an attempt to bring prices down. It said in a statement that it had made “substantial progress” in normalizing rates in the region, but it “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.”

The ECB decided to raise rates by 75 basis points for a second consecutive time last week.

Speaking at a subsequent press conference, ECB President Christine Lagarde said the likelihood of a recession in the euro zone had intensified.

Growth figures released Monday showed a GDP (gross domestic product) figure of 0.2% for the euro area in October. This is after the region grew at a rate of 0.8% in the second quarter. Only Belgium, Latvia and Austria registered GDP rates below zero.

So far, the 19-member bloc has dodged a recession but an economic slowdown is evident. Several economists predict there will be a contraction in GDP during the current quarter.

Andrew Kenningham, chief Europe economist at Capital Economics, said “the increase in euro zone GDP in the third quarter does not alter our view that the euro zone is on the cusp of a recession.”

“But with inflation having jumped to well over 10%, the ECB will prioritise price stability and press on with rate hikes regardless,” he added.

The euro traded below parity against the U.S. dollar in early European trading hours Monday and ahead of the new data releases, and barely moved after the new figures. The euro has been weaker against the greenback and that’s also something the ECB has been concerned about with concerns that this will push up inflation in the euro zone even further.

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75 bps hike expected but TLTROs and QT on the table

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Christine Lagarde, president of the European Central Bank, is expected to announce another 75 basis points hike.

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While the European Central Bank is largely expected to announce another rate hike Thursday, market players are seemingly more concentrated on two other policy tools as the region edges toward a recession.

The central bank has been contemplating inflation being at record highs but an economy that is slowing, with many economists predicting a recession before the end of the year. If the ECB takes a very aggressive stance in increasing rates to deal with inflation, there are risks that it tips the economy into further trouble.

Amid this context, the ECB is widely seen raising rates by 75 basis points later this week. This would be the second consecutive jumbo hike and the third increase this year.

“The ECB will likely raise its three policy rates by 75 basis points and suggest that it will go further at its next few policy meetings without providing a clear guidance on the size and number of steps to come,” Holger Schmieding, chief economist at Berenberg, said in a note Tuesday.

Given the inflationary pressures — the September inflation rate came in at 10% — analysts are pricing in at least another 50 basis point hike in December. The bank’s main rate is currently at 0.75%.

“A growing consensus seems to be in favour of having the deposit rate at 2% by the end of the year, implying a 50 basis point hike in December, with a reassessment of the economic and inflation outlook in early 2023,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said in a note Friday.

Two big questions

Rates aside, there are two questions on the minds of market players that need answering: When will the ECB start unwinding its balance sheet, in a process known as quantitative tightening, and what will happen to the lending conditions for banks in the near future. The ECB has undertaken years of quantitative easing, where it buys assets like government bonds to simulate demand, following the euro crisis of 2011 and the Covid-19 outbreak in 2020.

“When it comes to QT, boring is beautiful,” Ducrozet said, adding that he expects the process to start in the second quarter of 2023. QT is expected “to be predictable, gradual, and passive, starting with the end of reinvestments under the Asset Purchase Programme (APP) but not actively selling bonds any time soon,” he said.

Camille De Courcel, head of European rates strategy at BNP Paribas, said in a note Monday that the central bank might wait until the December meeting to provide details on QT but that it is likely to start reducing its balance sheet by about 28 billion euros on average per month when it does happen.

But perhaps the biggest uncertainty at this stage is whether lending conditions will change for European banks.

“We think Thursday [the ECB] will unveil a decision on the TLTRO, either its remuneration, or its cost. We think the new measure will only come into effect, in December,” De Courcel said.

The targeted longer-term refinancing operations, or TLTROs, is a tool that provides European banks with attractive borrowing conditions — hopefully giving these institutions more incentives to lend to the real economy.

Because the ECB has been increasing rates faster than the central bank initially expected, European lenders are benefiting from the attractive loan rates via TLTROs while also making more money from the higher interest rates.

“The optics are bad against the backdrop of a historical shock to households’ income, and political pressure cannot be ignored,” Ducrozet said.

The euro traded marginally higher against the U.S. dollar on Wednesday at $0.997. The weakness of the common currency has been a concern for the central bank though it repeatedly states that it does not target the exchange rate.

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Euro zone inflation hits another record of 9.1% as food and energy prices soar

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Inflation continues to hit new records just as the European Central Bank mulls another large interest rate hike for next month.

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Euro zone inflation hit a new record high in August of 9.1%, according to flash figures from Europe’s statistics office Eurostat, with high energy prices the main driving force.

The rate was above expectations, with a Reuters poll of economists anticipating a rate of 9%. It is the ninth consecutive record for consumer price rises in the region, with the climb starting back in November 2021. Headline inflation in the euro zone hit 8.9% (year-on-year) in July.

Energy had the highest annual inflation rate at 38.3%, Eurostat said Wednesday, down slightly from 39.6% in July. Food, alcohol and tobacco were up 10.6% compared to 9.8% in July, with the knock-on effects of recent heatwaves across the continent contributing to increases.

Non-energy industrial goods, such as clothing, household appliances and cars were up 5% compared to last year, a 0.5 percentage point increase on last month, while services were up by 3.8% in price year-on-year, 0.1 percentage points more than in July.

French and Spanish inflation slows

Drilling down into national figures, the French inflation rate decreased to 6.5% in August, down from 6.8% in July. The rate was lower than expectations, with economists polled by Reuters having anticipated a drop to 6.7%.

Spain also released slowing inflation figures for August, at 10.3% year-on-year compared to 10.7% for July, according to the Eurostat flash estimate.

Meanwhile, the region’s largest economy, Germany, saw inflation reach its highest level in almost half a century at 8.8% year-on-year in August.

Estonia currently has the highest inflation rate in the euro zone at 25.2%, followed by Lithuania (21.1%) and Latvia (20.8%). Malta and Finland follow France with the lowest inflation rates, at 7.1% and 7.6% respectively.

The ECB ‘has some catching up to do’

Inflation continues to hit new records just as the European Central Bank mulls another large interest rate hike for next month.

The ECB increased interest rates by 50 basis points to zero on July 21 – its first rate hike in 11 years – and a similar, or larger, hike is now expected on Sept. 8.

“Some members are inclined to advocate a 75 basis points interest rate increase,” Peter Schaffrik, global macro strategist at RBC Capital Markets, told CNBC’s “Squawk Box Europe” on Wednesday.

“Despite the slowdown in the economy that we will almost certainly be getting, the central banks won’t let up on their hiking path,” he said.

The outlook for Europe’s economy is “pretty bleak,” Kenneth Wattret, head of economics at S&P Global Market Intelligence, told CNBC’s “Street Signs Europe” on Aug. 23.

“It looks inevitable that the euro area is headed for a recession. The question is only how deep it will be and how long it will last,” he said. The ECB “has some catching up to do,” according to the economist.

“The ECB is way behind the curve, inflation is exceptionally elevated and likely remain that way for at least the next seven months,” Wattret said.

France’s Finance Minister Bruno Le Maire told CNBC’s Charlotte Reed Tuesday that inflation is a main focus for the nations of Europe in the short term. “The key challenge that we all have to face for the next weeks and the next months, is to reduce the level of inflation everywhere in Europe,” Le Maire said.

“So it’s up to the ECB to take the right decisions, and we fully trust the ECB to take the right decisions, but the key point is to have a decrease in the level of inflation everywhere in Europe,” he said.

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Growth accelerates for euro zone

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Growth in the euro zone economy accelerated in the second quarter of the year, but the region’s prospects get hit as Russia continues to reduce gas supplies.

The 19-member bloc registered a gross domestic product rate of 0.7% in the second quarter, according to Eurostat, Europe’s statistics office, beating expectations of 0.2% growth. It comes after a GDP rate of 0.5% in the first quarter.

The numbers contrast sharply with the negative annualized readings out of the United States for both the first and second quarter, as the euro zone continues to benefit from the reopening of its economy after the pandemic.

However, a growing number of economists are expecting the euro zone to slide into a recession next year, with Nomura, for example, forecasting an annual contraction of 1.2% and Berenberg pointing to a 1% slowdown.

Even the European Commission, the executive arm of the EU, has admitted that a recession could be on the cards — and as early as this year if Russia completely cuts off the region’s gas supplies.

Officials in Europe have become increasingly concerned about the possibility of a shutdown of gas supplies, with European Commission President Ursula von der Leyen saying Russia is “blackmailing” the region. Russia has repeatedly denied it’s weaponizing its fossil fuel supplies.

However, Gazprom, Russia’s majority state-owned energy giant, reduced gas supplies to Europe via the Nord Stream 1 pipeline to 20% of full capacity this week. Overall, 12 EU countries are already suffering from partial disruptions in gas supplies from Russia, and a handful of others have been completely shut off.

European Economics Commissioner Paolo Gentiloni said the latest growth figures were “good news.”

“Uncertainty remains high for the coming quarters: [we] need to maintain unity and be ready to respond to an evolving situation as necessary,” he said.

The GDP readings come at a time of record inflation in the euro zone. The European Central Bank hiked interest rates for the first time in 11 years earlier this month — and more aggressively than expected — in an effort to bring down consumer prices.

However, the region’s soaring inflation is being driven by the energy crisis, meaning further cuts of Russian gas supplies could push up prices even more.

“Given the challenging geopolitical and macroeconomic factors that have been at play over the past few months, it’s positive to see the eurozone experience growth, and at a higher rate than last quarter,” Rachel Barton, Europe strategy lead for Accenture, said in an email.

“However, it’s clear that persistent supply chain disruption, rising energy prices and record-breaking levels of inflation will have a longer-term impact.”

Meanwhile, Andrew Kenningham, chief Europe economist at Capital Economics, said Friday’s GDP figure would mark “by far the best quarterly growth rate for a while.”

“Indeed, news that inflation was once again even higher than anticipated only underlines that the economy is heading for a very difficult period. We expect a recession to begin later this year,” he added.

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ECB’s Lane sees double-sided risk of spiraling inflation and economic slowdown

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Philip Lane, chief economist of the European Central Bank.

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European Central Bank Chief Economist Philip Lane said the Frankfurt institution will have to remain vigilant over the coming months with the prospect of inflation spiraling ever higher alongside the risk of a consumer-led slowdown the region.

“With the uncertainty, we have to manage the two risks,” Lane, who is also a member of the bank’s Governing Council, told CNBC’s Annette Weisbach Tuesday at the ECB’s Sintra Forum in Portugal.

“On the one side, that could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure,” he added.

“So it’s very much having a clear vision for the next couple of meetings, having an orientation to move away from the very low rates we’ve had for quite a few years, but also fully respecting the importance of being data dependent. And to retain the optionality to respond to what we see, in the coming months.”

All eyes are on the ECB with a critical meeting next month. The central bank has said it will be raising interest rates for the first time in 11 years, but investors are more interested in understanding what the ECB is doing to address fragmentation risks in the region.

The euro zone’s central bank held an emergency meeting earlier this month as borrowing costs surged for the so-called peripheral European nations. The ECB said it would be developing a new tool to address these risks — however, markets were left wondering when the tool would be implemented and how far it would go.

These conversations come at a time when there’s widespread concern about the euro zone economy. Inflation is high and the growth outlook is deteriorating.

“Can you really hike interest rates into a recession even if inflation is high? That would be unusual,” Erik Nielsen, the global chief economist at UniCredit, told CNBC Tuesday.

The ECB confirmed in early June its intention to hike rates next month and then again after the summer. This would likely bring the ECB’s deposit rate back out of negative territory and mark a massive moment for the central bank, which has kept rates below zero since 2014.

However, there are questions on whether Lagarde will follow through with multiple rate hikes with the region’s growth outlook darkening.

The ECB in June forecast a GDP rate of 2.8% for the euro zone this year, but economists are starting to talk about the prospect of a recession toward year-end off the back of Russia’s invasion of Ukraine and the impact that’s having on the global economy.

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ECB Lagarde plays down recession risks at Sintra Forum

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European Central Bank President Christine Lagarde said the central bank can raise rates faster, if needed.

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European Central Bank President Christine Lagarde on Tuesday played down concerns about a recession in the euro zone, also saying her team is ready to raise rates at a faster pace — if needed — if inflation continues to shoot higher.

Central bank officials are gathered in Portugal for their annual conference, with the focus on surging consumer prices. The euro zone is expected to see a headline inflation rate of 6.8% this year — well above the ECB’s target of 2%.

This comes at a time when economists are assessing whether or not the euro zone will escape a recession this year. The region has seen growth levels deteriorate amid an energy crisis, sanctions on Russia and food insecurity — just to name a few factors.

“We have markedly revised down our forecasts for growth in the next two years. But we are still expecting positive growth rates due to the domestic buffers against the loss of growth momentum,” Lagarde said Tuesday at the Sintra Forum.

The European Central Bank held an emergency meeting earlier this month to announce a new tool aimed at addressing fragmentation risks in the euro zone. However, market players were left with questions about the timing and magnitude of the mechanism.

Investors are concerned about high inflation and have been tracking closely what the ECB is saying and doing. Investors are also wary of the high levels of debt in Europe, in particular in Italy, and how a return to tighter monetary policy could become a financial constraint for these economies.

“If the inflation outlook does not improve, we will have sufficient information to move faster. This commitment is, however, data dependent,” Lagarde added Tuesday.

Rising or cutting rates?

Speaking to CNBC, Erik Nielsen, global chief economist at UniCredit, said he does not expect this year’s forum to address disparities between public debt levels, but to focus more on the future of monetary policy.

“Can you really hike interest rates into a recession even if inflation is high? That would be unusual,” he said.

The ECB confirmed in early June its intention to hike rates next month and then again after the summer. This would likely bring the ECB’s deposit rate back out of negative territory and mark a massive moment for the central bank, which has kept rates below zero since 2014.

However, there are questions on whether Lagarde will follow through with multiple rate hikes with the region’s growth outlook darkening. The ECB in June forecast a GDP rate of 2.8% for the euro zone this year, but economists are starting to talk about the prospect of a recession toward year-end off the back of Russia’s invasion of Ukraine and the impact that’s having on the global economy.

According to Nielsen, the Federal Reserve in the United States is in the same position.

“There is a very high chance the Fed ends up cutting rate towards, sort of, the end of next year or something, and this is the recession story again,” he said.

“They can’t implement what they are saying, they will do the next one and maybe one more hike but then it is going to be really difficult for them, both in the U.S. a little bit later, and in Europe,” he added.

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European Central Bank last-minute meeting to look at market conditions

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The European Central Bank announced an unscheduled monetary policy meeting for Wednesday, at a time when bond yields are surging for many governments across the euro zone.

“They will have an ad hoc meeting to discuss current market conditions,” a spokesperson for the central bank told CNBC.

Borrowing costs for many governments have risen sharply in recent days. In fact, a measure known as Europe’s fear gauge — the difference between Italian and German bond yields which is widely watched by investors — widened the most since early 2020 earlier on Wednesday.

The yield on the 10-year Italian government bond also passed the 4% mark earlier this week.

The moves in the bond market, which highlights nervousness among investors, were linked to concerns that the central bank will be tightening monetary policy more aggressively than previously expected.

At the same time, the ECB failed last week to provide any details about possible measures to support highly indebted euro zone nations, which further fueled concerns among the investment community.

However, in the wake of Wednesday’s announcement, bond yields have come down and the euro moved higher against the U.S. dollar. The euro traded 0.7% up at $1.04 ahead of the market open in Europe.

Shares of Italian banks also rallied on the back of the announcement. Intesa Sanpaolo and Banco Bpm both surged 5% in early European trading hours.

The market reaction so far suggests that some market players are expecting the ECB to address concerns over financial fragmentation and indeed provide some clarity about what sort of measures it might take to support highly indebted nations.

The ECB’s decision to meet Wednesday also comes just hours ahead of a rate decision by the U.S. Federal Reserve. Market expectations point to a 75-basis-point rate hike, the biggest increase since 1994.

Stepping up when needed?

Wednesday’s announcement also followed a speech by one of the members of the central bank that aimed to address some of the recent market skittishness over financial fragmentation.

Isabel Schnabel, a member of the ECB’s executive board, said in Paris Tuesday: “Our commitment to the euro is our anti-fragmentation tool. This commitment has no limits. And our track record of stepping in when needed backs up this commitment.”

One of the most defining moments in the ECB’s history took place in 2012 when former President Mario Draghi said the central bank would do “whatever it takes” to safeguard the common currency. The ECB was also seen by many as stepping up significantly and promptly in the wake of the coronavirus pandemic.

Financial fragmentation is a risk for the euro zone. Although the 19 members of the euro area have different fiscal capacities, they share the same currency. As such, instability in one nation can spillover to other euro capitals.

“We will react to new emergencies with existing and potentially new tools. These tools might again look different, with different conditions, duration and safeguards to remain firmly within our mandate. But there can be no doubt that, if and when needed, we can and will design and deploy new instruments to secure monetary policy transmission and hence our primary mandate of price stability,” Schnabel said Tuesday.

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European Central Bank poised to signal July rate hike as inflation jumps

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Christine Lagarde, president of the European Central Bank, seen during a panel session at the World Economic Forum in Davos, Switzerland, on Wednesday, May 25, 2022.

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The European Central Bank on Thursday is expected to confirm its intention to raise interest rates next month, as rate setters meet in Amsterdam for their first policy meeting outside of Frankfurt since the onset of the coronavirus pandemic.

While inflation for the 19-member euro area hit another record high in May, a rate hike would only come in July as the ECB first needs to formally end its net asset purchases, according to its forward guidance.

The key question is how aggressive the shift will be over the coming months — some analysts have moved their estimates for a larger hike in September at the latest.

“A handful of Governing Council members are already open to a 50bp hike,” said Mark Wall, a chief economist with Deutsche Bank, in a research note.

“We believe the ECB is continuing to underestimate inflation and we expect support for a 50bp hike will increase as the summer progresses.”

The ECB will also publish new staff projections for growth and inflation this week — and market participants are likely to closely monitor the 2024 inflation print as this constitutes the ECB’s medium-term price target.

The ECB is also expected to downgrade its growth forecasts and upwardly revise its inflation projections, with the 2024 inflation number probably hitting 2%, the medium-term target of the ECB.

Persistently high inflation is the top concern for policymakers on the ECB’s Governing Council.

“Inflation is not only too high, but also too broad,” Francois Villeroy de Galhau, France’s central bank governor, said last week at a conference in Paris. “This requires a normalization of monetary policy — I say normalization and not tightening.”

While inflation, and the fight against it, is of course the core mandate of the ECB, the topic of fragmentation risk will most likely be addressed this week as well.

Bond markets have already reacted to the end of the asset purchases and reassessed the different risks associated with different euro zone countries.

As a result, the spread between German and Italian bonds has been widening. The 10-year spread was above 200 basis points on Monday, compared with less than 140 basis points at the start of the year

“Fragmentation makes life complicated for the ECB. This is not to say that these considerations will overrule whatever the inflation picture dictates in terms of policy tightening,” Dirk Schumacher, an ECB watcher with Natixis, said in a research note.

“But it is nevertheless an important implicit argument for gradualism,” he added.

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eurozone breaks another record in April 2022

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Inflation in the euro zone remains well-above the ECB’s target, as energy and food prices soar.

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Inflation in the euro zone has hit a record high for the sixth consecutive month, sparking further questions over how the European Central Bank will react.

Headline inflation in the 19-member region reached 7.5% in April, according to preliminary estimates by Europe’s statistics office. In March, the figure came in at 7.4%.

European Central Bank Vice President Luis de Guindos tried to reassure lawmakers over rising prices on Thursday, saying the euro zone is close to reaching peak inflation. The central bank sees price pressures diminishing in the second half of this year, although energy costs are expected to keep inflation relatively high.

The latest inflation reading comes amid concerns over the ongoing war in Ukraine war and subsequent impact on Europe’s energy supply — and how this could affect the region’s economy.

Rising energy prices contributed the most to April’s inflation rate, though they were slightly lower than the previous month. Energy prices were up 38% in April on an annual basis, compared to a 44.4% rise in March.

Earlier this week, Russia’s energy firm Gazprom halted gas flows to two EU nations for not paying for the commodity in rubles. The move sparked fears that other countries may also be cut off.

Analysts at Gavekal, a financial research firm, said that if Gazprom were to also cut supplies to Germany, “the economic effects would be catastrophic.”

Meanwhile in Italy, central bank estimates are pointing to a recession this year if Russia cuts all its energy supplies to the southern nation.

As a whole, the EU receives about 40% of its gas imports from Russia. Reduced flows could hit households hard, as well as companies that depend on the commodity to produce their goods.

Speaking to CNBC Friday, Alfred Stern, CEO of one of Europe’s largest energy firms, OMV, said it would be almost impossible for the EU to find alternatives to Russian gas in the short-term.

“We should be rather clear: in the short run, it will be very difficult for Europe, if not impossible, to substitute the Russian gas flows. So, this can be a medium-to-long term debate … but in the short run, I think we need to stay focused and make sure that we keep also European industry, European households supplied with gas,” Stern said.

Separate data also released Friday pointed to a GDP (gross domestic product) rate of 0.2% for the euro area in the first quarter.

“Among the Member States for which data are available for the first quarter 2022, Portugal (+2.6%) recorded the highest increase compared to the previous quarter, followed by Austria (+2.5%) and Latvia (+2.1%). Declines were recorded in Sweden (-0.4%) and in Italy (-0.2%),” the release said.

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