• Jesús Cabra Guisasola, Senior Associate at Validus Risk Management


• 07.01.2022 11:30 am
#RiskManagement

Commenting on the market reaction to a surprise increase in Eurozone CPI, Jesús Cabra Guisasola, Senior Associate at Validus Risk Management, said: “The euro area's headline inflation rate accelerated unexpectedly to 5% vs 4.8% estimated during the last month of 2021, and at a faster pace compared to November when it was reported at 4.9%.

“Some of the contributors for this increase can be found in the Spanish and Italian inflation figures which increased at the fastest pace in decades. Both economies reported inflation at 6.7% and 4.2% compared to a year ago, mainly driven by the surge in electricity prices which continue pushing households’ expenses up.

“In contrast, Germany and France reported a slowdown in the inflation figures, with an increase of 5.7% and 3.4% in prices compared to a year ago, and down from the previous month’s 6% and 3.5%.

“During last month meeting, Christine Lagarde mentioned that inflation is likely to remain elevated in the near term with a slowdown during 2022. Hence, we should not expect these mixed figures to change the dovish stance from the ECB in the coming months and continue with the plan of ending the net asset purchases under the emergency program by March.

“The divergence between ECB and Fed's policy stance could lead to the EUR continuing to depreciate versus the USD during 2022 if the Fed decides to deliver the three hikes that most market participants are currently pricing in before the end of the year.”