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LGT Navigator: High energy prices fuel inflation

April 13, 2022

In the US, prices are rising as fast as they last did in 1981. In Germany, too, price growth accelerated again in March. On financial markets, the focus is now shifting to the earnings season: the major US bank JPMorgan Chase is presenting its earnings figures for the first quarter today.

US inflation

Inflation in the US has risen to its highest level in more than forty years. After the publication of the data on Tuesday, US stock markets initially rose. The fact that core inflation remained slightly below market expectations provided relief. In addition, market participants hope that inflation has now reached a peak. In the course of the day, however, gains crumbled again. The S&P 500, the Dow Jones and the Nasdaq Composite finally closed each -0.3% weaker. Investors are now waiting for the start of the earnings season, which kicks off today with the quarterly figures of JPMorgan Chase.

Asian stock exchanges show a mixed picture on Wednesday. In Tokyo, the Nikkei gains more than +1.5%. The Hang Seng Index trades in Hong Kong slightly up. The Shanghai Composite loses -0.4%.

US inflation keeps rising

American consumers continue to face rapidly rising prices. Annual inflation rose +8.5% in March, the US Department of Commerce reported Tuesday. The last time prices rose that fast was in December 1981, when the energy crisis in the late 1970s triggered stagflation. Among the biggest price drivers in March were energy, rents and food. Gasoline prices alone rose by almost +20% from the previous month. The annual core inflation rate of +6.5% is as high as it was last in August 1982. Consumers expect prices to rise further in the coming months, as the latest data from the Federal Reserve Bank of New York show. Accordingly, they expect price growth of +6.6% in the coming twelve months. The three-year inflation expectations are +3.7%. 

The Federal Reserve has significantly stepped up the fight against high inflation in recent weeks. After an initial rate hike of 25 basis points in March, it is targeting a steep rate hike path this year. Currently, financial markets are expecting a 50 bp hike at the next Fed meeting on May 4. In addition, the Fed is likely to start reducing the central bank balance sheet in May. 

Inflation in Germany accelerates

In Germany, inflation in March rose to its highest level since reunification in 1990. Consumer prices climbed by +7.3% compared to the same month last year, as reported by the Federal Statistical Office on Tuesday. The authority thus confirmed an initial estimate. In February, the annual inflation was at +5.1%. After the Russian attack on Ukraine at the end of February, oil and gas prices have shot up. This is also being felt by consumers: the price of heating oil has more than doubled year-on-year, and the price of gasoline has risen by almost 50%. If volatile food and energy prices are excluded, the core inflation rate is +3.6%. The last time prices rose at a similar rate was in the fall of 1981, in the old states of the Federal Republic of Germany. At the time, energy prices increased significantly as a result of the First Gulf War. Economists forecast an average inflation rate of more than +6% for Germany for the year as a whole. 

Economic expectations for the eurozone dim

The war in Ukraine is clouding the economic outlook for the German economy. Thus, the ZEW index, which is based on surveys of financial experts, fell by -1.7 points in April compared with the previous month to -41.0 points, according to the Center for European Economic Research (ZEW) on Tuesday. The sentiment index thus fell to its lowest level since the outbreak of the corona pandemic. Analysts had forecast an even sharper decline to -48.5 points. The ZEW index for economic expectations in the eurozone showed a similar picture, with the barometer falling by -4.3 points to -43.6.


Economic Indicators April 13

MEZ Country Indicator Last period
05:00 China Current account (March)
11:00 EZ Industrial production (February, m/m) +1.3%
14:30 US Producer price index (March, m/m) +0.8%


Earnings Calender April 13

Country Company Period
CH Barry Callebaut  Q2 2022
US JPMorgan Chase  Q1 2022


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