Euro Dips As German Inflation Soars

04/12/2022

1 minute read

2022.04.12 23:06

German data was in the spotlight on Wednesday, with German inflation and the ZEW Economic Sentiment release. The numbers were worrying, but the euro’s response was muted, as the currency trades in the mid-1.08 range.

German, US inflation soars

German CPI for March came in as expected, at 7.3% YoY. Still, this was a large jump from the 5.1% gain in February and marks the highest inflation release since Germany reunified in 1990.

The drivers behind the jump are not hard to identify. The ongoing war in Ukraine, which looks like it will intensify, has caused significant inflation, especially for heating oil, natural gas, and food products. Heating oil, for example, has soared 144% in the past 12 months. Germany is also struggling with supply disruptions due to the COVID pandemic.

This has resulted in shortages of computer chips and many other products and hampered the critical manufacturing sector.

ECB President Lagarde has been dismissive of inflation, taking a page from (the old) Fed Chair Powell and arguing that inflation was transitive. Eurozone inflation lagged behind the numbers in the US or UK, but today’s German CPI release clearly shows that eurozone inflation is red-hot, and the ECB will need to be more aggressive in order to lower inflationary pressures.

There was more bad news as the German ZEW Economic Sentiment worsened in April, with a reading of -41.0 (-39.3 prior). This was better than the consensus of -48.0 but still points to deep pessimism over the economic outlook amongst financial experts. The Eurozone ZEW release showed similar numbers.

In the US, inflation continues to spiral, with the March headline figure hitting 8.5%, YoY, the highest level since December 1981. Inflation is being driven by supply bottlenecks, rising energy and food prices, and robust consumer demand.

EUR/USD Technical