03.07.2022
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Weak euro could lead to accelerated inflation in Europe

German Finance Minister Christian Lindner warned that a weaker euro could lead to faster inflation in Europe. At the same time, he called on the European Central Bank (ECB) to raise interest rates, an unusual move that highlights Germany’s growing concerns about the rapid pace of price increases, The Wall Street Journal notes.

After several weeks of falling, the euro approached parity with the US dollar.

This partly reflects the relative weakness of the eurozone economy, which has been hit by a surge in energy prices, and also due to expectations of further interest rate hikes by the Federal Reserve. At the same time, the ECB has not yet raised interest rates: the base rate remains at zero, for deposits it is minus 0.5% per annum.

Europe could face a recession due to the economic fallout from the conflict in Ukraine. At the same time, inflation in the euro area in April was a record 7.4%. The growth rate of consumer prices in Germany last month reached a maximum since 1981 – 7.8%.

“Inflation is a serious risk to future economic development and, in particular, to the economic progress we need,” Lindner said at a press conference yesterday after a two-day meeting with eurozone finance ministers.

Bundesbank chief Joachim Nagel said at the same press conference that he thought the ECB would raise interest rates in July and that further increases could follow. Nagel, who is part of the ECB leadership, also did not rule out the possibility of raising the rate by 0.5 percentage points at once.

Economists on average predict an increase of 0.25 percentage points. The European Central Bank has not raised the cost of lending since 2011.

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