By Swann Collins, investor, writer and consultant in international affairs. Eurasia Business News – April 2, 2022
The rate of annual inflation of the Eurozone hit record 7.4% in March. The situation is critical, after Eurozone inflation hit 5.9% in February, 5.8% in January, 5% in December, 4.9% in November, 4.1% in October, 3.4% in September and 3.0% in August 2021, according to a flash estimate issued by Eurostat, the statistical office of the European Union.
The main components of inflation in the eurozone are energy prices, which are expected to experience the highest annual rate in March (44.7%, compared to 32.0% in February), followed by food, alcohol & tobacco prices (5.0%, compared to 4.2% in February), industrial goods prices excluding energy (3.4%, compared to 3.1% in February) and services prices (2.7%, compared to 2.5% in February).
Quantitative easing policies (massive printing of paper money) and low interest rates maintained by the European Central Brank since 2010 (with only few breaks), now associated with supply chain disruptions after coronavirus lockdowns worldwide and Western sanctions against Russian banks, companies and commodities (US ban on Russian crude oil, US and EU ban on Russian state-owned companies trading commodities such as oil, gas, rare earth metals, palladium, gold).
However, Christine Lagarde, President of the ECB, continue saying that food and energy prices in the euro zone are expected to stabilize, allowing the European economy to avoid combining low growth with high inflation (stagflation). Denying reality, we can be sure that Ms Lagarde and her team do not fear to lose credibility.
Nevertheless, on March 10, the ECB announced its intention to end its asset purchase program in the third quarter of 2022, a prerequisite before any rate hike.
The situation is also critical in the United States, where annual inflation hit record 7.9% in February. This is the highest level of inflation never seen in the United States since February 1982 and the dynamic has been here for months. U.S. inflation already reached 7.5% in January after hitting 7% in December 2021, 6.8% in November and 6.2% in October.
Read also : How to invest in gold
Amid this high inflation in the Euro area and in the U.S., gold prices have been growing over the past month and reached yesterday a high of $1,940 per troy ounce, before stabilizing at $1,926 per troy ounce at closure on April 01, 2022 04:59 PM NY Time.
On February 22, gold prices reached $ 1,913 per troy ounce and stabilized at $ 1,899 at closure time.
The yellow metal is a great hedge against inflation because it rises in price when the cost of living standards rises. Even state central banks have been purchasing physical gold since 2014 to strenghten their national paper currencies amid global economic and political disruptions. Inflation is not expected to significantly lower in 2022, because of persistent high public spending, state deficits, global industrial competition, quantitative easing policies and supply chains disruptions due to war in Europe.
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© Copyright 2022 – Swann Collins, investor and consultant in international affairs.