Geo-Economics and Politics

Has Eurozone inflation peaked? Plus other economy stories you need to read this week

The European Central Bank's top names are in disagreement over the inflation outlook.

The European Central Bank's top names are in disagreement over the inflation outlook. Image: Hans from Pixabay

Ian Shine
Senior Writer, Forum Agenda
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  • This weekly round-up brings you the latest stories from the world of economics and finance.
  • Top economy stories: European Central Bank's top names disagree over inflation outlook; Cryptocurrency collapse continues; US to slow interest rate hikes.

1. Has Eurozone inflation peaked?

Eurozone inflation eased far more than expected in November, raising hopes that surging price growth is past its peak. But the European Central Bank's (ECB) top names are in disagreement over the outlook for inflation and interest rates, according to Reuters.

Consumer prices in the monetary bloc grew by 10.0% on the year in November after a 10.6% increase in October. But in the days before the announcement, ECB President Christine Lagarde said eurozone inflation has not peaked and could turn out even higher than expected. The bank’s Vice-President Luis de Guindos disagreed, saying he expects inflation to hover around its current level over the next few months before starting to decline in the first half of 2023.

Euro area annual inflation, November 2022, %
Eurozone inflation declined in November, and some experts think it may now have peaked. Image: Eurostat

ECB Chief Economist Philip Lane also believes that record price growth will start to subside next year. He says many arguments for a fourth consecutive 75-basis-point hike to interest rates are "no longer there" – and many observers will see November’s drop in inflation as evidence of this. However, ECB Executive Board Member Isabel Schnabel has pushed back against smaller interest rate increases, saying this could hamper efforts to bring down inflation

Eurozone economic sentiment rose in November for the first time since the Russian invasion of Ukraine in February, on increased optimism among consumers and in services. Inflation expectations among consumers also fell sharply.

The Financial Times says global inflation may have peaked, based on analysis of various important data indicators. “Factory gate prices, shipping rates, commodity prices and inflation expectations have all begun to subside from their recent record levels,” it says.

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2. Crypto collapse continues

Cryptocurrency lender BlockFi filed for bankruptcy in late November, saying it was hurt by exposure to the collapse of the FTX exchange earlier in the month. BlockFi was exposed to FTX through loans to affiliated crypto trading firm Alameda FTX, and by cryptocurrencies held on FTX's platform that became trapped there. BlockFi has listed its assets and liabilities as between $1 billion and $10 billion.

FTX made its bankruptcy filing after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. At least $1 billion of customer funds have vanished from within FTX, according to Reuters, but FTX's boss denies committing fraud.

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Two other large players in the digital currency market filed for bankruptcy in July. Celsius Network and Voyager Digital blamed their collapse on extreme market conditions that had led to losses. Crypto prices have plummeted in the second half of this year, with bitcoin – the most popular digital currency by far – is down more than 70% from its 2021 peak.

Digital currency is on "the road to irrelevance", according to the European Central Bank, which published a blog entitled Bitcoin’s Last Stand following the collapse of FTX and BlockFi.

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UK crypto fraud rose by a third between October 2021 and September 2022, according to The Financial Times, which made the discovery after sending a freedom of information request to UK police unit Action Fraud.

News in brief: Stories on the economy from around the world

US Federal Reserve Chair Jerome Powell says it is time to slow the pace of interest rate hikes. The central bank has made four consecutive rate rises of 0.75 percentage points since June. European shares scaled near six-month highs following the comments, and the dollar tumbled to a three-month low against the Japanese yen.

The EU and US could be heading towards a trade war, as ministers struggle to resolve an intensifying dispute over Washington’s $369 billion of green subsidies under the Inflation Reduction Act (IRA), The Financial Times reports. The IRA gives US consumers and companies tax credits and subsidies on a range of clean technology products, but only if they are made in the US.

Inflationary pressures are rising in Japan. Core consumer prices in the capital Tokyo rose at their fastest annual pace in 40 years in November, and exceeded the central bank's 2% target for a sixth straight month. Tokyo prices are a leading indicator of nationwide trends.

And Japanese factory output fell for a second consecutive month in October, amid stalling global demand and lingering supply bottlenecks. Production machinery output slipped 5.4% because of weaker demand for equipment to make semiconductors and flat-panel displays.

A weak export outlook means Taiwan's economy is likely to grow more slowly than previously forecast in 2022 and 2023, its statistics office says. It has cut its export forecast due to global inflation, interest rate rises and China's zero-COVID policy. Taiwan is home to the world's largest contract chipmaker, TSMC, and benefited from soaring demand for tablets, laptops and other electronics during the pandemic.

China's manufacturing and services activities shrank further in November, hitting seven-month lows according to official data. The country's strict COVID-19 restrictions and rising infections will continue hurting the economy well into 2023, analysts say.

India’s annual economic growth stood at 6.3% in July-September. This is down from 13.5% in April-June, but the figures for that period were distorted by depressed performance a year earlier because of COVID-19 lockdowns. The country's factory activity expanded at its fastest pace in three months in November.

Egypt's finances remain in a precarious state despite two major currency devaluations this year and a new $3 billion International Monetary Fund rescue package, economists say. Debt interest payments are set to account for over 40% of government revenues next year.

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Spain's consumer prices rose by 6.8% in the 12 months to November, down from 7.3% in October, according to preliminary data from the National Statistics Institute. The reading is the lowest since January.

Inflation dipped in five German states in November, suggesting easing cost pressures in Europe's largest economy.

More economy stories on Agenda

Will the cost of living crisis ease next year? The global public doesn’t think so, with nearly 7 in 10 thinking inflation will continue to rise and more than 6 in 10 expecting interest rates and unemployment to climb, according to a new Ipsos survey.

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