Charting the Global Economy: European Inflation Soars to Record


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(Bloomberg) — Euro-zone inflation rose to a record 7.5% in March from a year earlier as Russia’s war in Ukraine further exacerbated already rising energy costs.

While it will cost consumers about 230 billion euros ($254 billion) this year, household savings should help cushion the blow. In the US, the Federal Reserve’s preferred inflation gauge rose to a four-decade high, and China’s Covid lockdown threatened to disrupt supply chains and push prices even higher.

Here are some charts that appeared on Bloomberg this week on the latest developments in the global economy:

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Europe

Euro-zone inflation rose to a new record high as Russia’s invasion of Ukraine strained global supply chains and provided a new driver for already rising energy costs. With inflation ebbing from Spain and Germany this week, data prompted investors to bet further on when the European Central Bank will end nearly eight years of negative interest rates.

According to a Bloomberg Economics analysis, the energy crisis in the euro area will cost consumers an additional bill equal to 1.8% of their GDP. Jamie Rush and Maeva Cousin estimate that rising heating and electricity costs, along with higher fuel prices for motorists, will add 230 billion euros ($255 billion) to household expenses.

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UK households saved less of their income in the last quarter of last year to cope with runaway inflation in an early sign of pressure to maintain living standards.

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The US added nearly half a million jobs in March and the unemployment rate fell more than expected, highlighting a strong labor market that is likely to support aggressive Fed tightening in the coming months.

Inflation-adjusted consumer spending declined in February, suggesting that the fastest pace of price increases in four decades is starting to dampen demand. Spending on goods bounced back after last month’s surge, while a fall in Covid-19 cases supported a pickup in outlay for services.

US business profits rose 35% last year, the most since 1950, driven by strong domestic demand as the economy bounced back from the pandemic. Commerce Department data shows that in all four quarters of the year, overall profit margins remained above 13%, reaching just another three-month period during the past 70 years.

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Asia

China’s Covid lockdowns are straining the economy and threatening to disrupt global supply chains, prompting Beijing to call for more contingency plans to address the risks. Purchasing managers’ indices for March showed a lockdown in factory activity for the month in the technology and business center Shenzhen and the automotive city of Changchun. Services have also been badly affected.

Japan’s factory output hit the first gain in three months in February, showing only a sign of resilience amid fears of the economy turning back. The partial gains come at a time when the Japanese economy needs stronger manufacturing to help the economy survive a contraction in the quarter and power recovery going forward.

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emerging markets

Colombia surprised the markets with a lower-than-expected interest rate hike after the central bank was criticized by senior politicians. Analysts had expected a big boost given the recent inflation shock and an economy that is now operating close to full capacity. Central banks in Chile, the Czech Republic and Mozambique were also among the rate hikers.

The exodus of foreign workers from Saudi Arabia begins to reverse a year and a half later as the economy recovers rapidly from the pandemic and oil prices. Job creation is the biggest challenge facing the kingdom’s de facto leader, Crown Prince Mohammed bin Salman, as he reshapes an economy dependent on oil exports and imports of foreign labor.

World

Governments are not sufficiently aware of the long-lasting economic repercussions from Russia’s invasion of Ukraine, says OECD chief economist Lawrence Boone. Earlier this month, the Paris-based OECD projected that the effects of the conflict would slash global growth by more than 1 percent this year and push inflation up 2.5 percentage points from already high levels.

©2022 Bloomberg LP

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