BRUSSELS, Sept. 5 (Xinhua) -- Affected by multiple factors such as the energy crisis, extreme weather and the spillover effect of the Federal Reserve's continuous aggressive interest rate hikes, energy and food prices in the euro area have continued to soar recently, inflation has reached new highs, and the outlook for economic growth has become even bleaker. Analysts believe that the postponement of the geopolitical crisis in Europe and the anti-phagocytic effect of the EU blindly following the US economic sanctions imposed on Russia have gradually emerged, making the severe inflation situation in Europe worse.
Inflation is heading into double-digit times
The latest eurostat data showed that eurozone inflation reached 9.1% annualized in August, beating market expectations and hitting another record high. Inflation in nine of the eurozone's 19 member states is double digits per annum, with the Baltic states exceeding 20 percent.
The roof leaked during the overnight rain. Europe has been hit by severe drought this year, with about 47 percent at risk of drought and another 17 percent under more severe alerts. Bert Collion, senior eurozone economist at the Dutch International Group, pointed out that the energy crisis and dry weather will continue to weigh on prices in the coming months, and inflation will hardly show any signs of easing in the short term.
This is the Rhine river photographed in Rüdesheim, Hesse, Germany, on August 16. Affected by the recent continuous high temperature and dry weather, the rhine river has experienced different degrees of water level decline in many sections of Germany. (Photo by Xinhua reporter Ren Pengfei)
In addition, current market concerns about the level of European gas inventories in winter, as well as the surge in the cost of importing LNG from the United States, have also boosted European gas prices, making double-digit eurozone inflation possible.
Affected by this, real wages in the euro area have shrunk severely, people's purchasing power has declined, household consumption is much lower than before the epidemic, retail sales have shown a downward trend, and consumer confidence is at a historic low. At the same time, the cost surge also rippled into the production sector, leading to a decline in industrial output, which had more adverse effects on the European economy.
The risk of recession has increased sharply
Recently, the Fed's successive aggressive interest rate hikes have brought negative spillover effects to Europe, and the euro has continued to weaken, falling below the dollar parity several times, further exacerbating European inflation, and making it more difficult for the European Central Bank to adjust monetary policy.
This is a euro and dollar note photographed in Madrid, Spain, on August 23. According to data released by the Frankfurt Stock Exchange, the euro fell below 1-1 against the dollar again on August 22, with the lowest falling to 1-0.9934, a new 20-year low. (Photo by Xinhua news agency reporter Meng Dingbo)
Germany's Süddeutsche Zeitung published a commentary saying that the European Central Bank has been led by the Fed into the rhythm of interest rate hikes. The depreciation of the euro against the dollar has made europe even more difficult, as Europe imports from the United States at higher prices, pays higher amounts for dollar-denominated raw and semi-finished products such as energy, drives up the cost of raw materials in Europe, and pushes inflation further. The eurozone is already in a predicament of high inflation and has to bear the inflationary pressure passed on by other countries. The European Central Bank has had to raise interest rates even more sharply in response to inflation, and its own risk of recession has sharply increased.
Market analysts predict that in response to high inflation, the ECB will raise interest rates by at least 50 basis points in September with little suspense, while the hawks will strive to raise rates by 75 basis points.
Winting, global head of monetary strategy at Brown Brothers Inc., said a sharp rate hike could wreak havoc on the struggling eurozone economy.
Dutch International Group economist Carsten Brzewski also believes that the ECB's interest rate hike will help normalize monetary policy and control inflation expectations, but it cannot at the same time curb high inflation without triggering a recession.
Sanctions against Russia are anti-devouring
Analysts believe that the EU sanctions on Russia, which is highly dependent on Russia's energy supply, have a huge anti-phagocytic effect on Russia, causing Europe to fall into an energy supply dilemma, and then continuously pushing up European gas and electricity prices.
On August 26, dutch ownership transfer center (TTF) natural gas futures, which is considered the benchmark price for European natural gas, closed at more than $100 per million British thermal units, a record high and more than ten times the price in the same period last year.
This is a gas processing station for the Midia Gas Project taken on June 28 in the village of Vadu in Constanţa County, Romania. The Romanian Black Sea Midia Natural Gas Development Project is Romania's first new gas development project in the Black Sea waters in more than 30 years. (Xinhua News Agency, photo by Christier)
In contrast, the benchmark price of natural gas in the US market is much lower than that in Europe. Today, many U.S. traders are selling LNG to Europe for high profits.
Hagen Reinhold, a member of the German Bundestag, is skeptical of the effectiveness of the sanctions against Russia. He said that Western sanctions have not brought benefits other than bringing gas shortages and power crises to Germany, which is the consensus of many German business people.
Hungary's Prime Minister Guyash Gelgei believes it is a "fundamental mistake" for the EU to extend sanctions against Russia to the energy sector.
Herbert Kicker, a member of Austria's parliament and leader of the Liberal Party, said sanctions were meaningless if they hurt the perpetrators more. This is the case with the current EU sanctions against Russia.