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February 3, 2023
EDITORIALOP-EDOPINIONPOINTS OF VIEW

iBanFirst : Is inflation cooling down in Eastern Europe?

With energy being the main driver of inflation in Romania like in other EU countries, iBanFirst analysts expect the headline to move downward in the coming months as energy prices – both oil and natural gas – are decelerating quite fast.

But inflation will remain well-entrenched, especially for foods. This means there is no easy comeback to the pre-Covid levels of inflation. iBanFirst also predicts that energy inflation could move back upward in the second semester as an higher level of Chinese demand could increase market imbalances.

„This mean tighter financial conditions are certainly needed for most of 2022. Given that the EU economy including the Romanian economy are more resilient than initially forecasted, this gives much more leverage to central banks to remain hawkish”, says Johan Gabriels, Regional Director, South Eastern Europe, iBanFirst.

The downward trend is identical to those observed in Western Europe and the United States Even though the figures in absolute value remain much higher in Eastern Europe.

In Western Union and in the US, the following points are observed:

December CPI in Germany and in France were down significantly, respectively at 8.7% year-over-year (against prior 10.4%) and 6.7% year-over-year (against prior 7.1%).

In the US, the inflation rate fell again: 6,5% on an annual basis according to the Consumer Price index published on January the 12th. The significant decrease in gasoline prices explains the deflation observed in December, at -0.1%.

The drop is partially explained by the sharp decrease in energy prices. But according to iBanFirst it won be sufficient for monetary policy to shift out of tightening mode just yet. „In our view, there is a high risk that inflation will increase again in Spring/Summer this year mostly due to higher energy prices”, adds Johan Gabriels.

This could be fueled by a deficit in the oil market due to OPEC+ cuts and EU ban on Russian oil and difficulties filling gas inventories for next year in the EU. Therefore, it is too early to believe the peak in inflation is effectively behind us in Europe.

 

Photo: www.pixabay.com

 

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