Eurozone panic: EU policy risks sending inflation soaring after record high 2021

Investment expert on the high annual inflation rate

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The warning came from German European Central Bank (ECB) Executive Board member Isabel Schnabel, who claimed the EU’s bank is underestimating the impact green policies and energy prices will have on inflation in the next two years.

European shares slipped on Friday on concerns over rising inflation and surging coronavirus infections, while investors were uncertain over how weak US payrolls data would influence the Federal Reserve’s plans for tightening policy.

Data showed eurozone inflation rose to a record high last month, likely pointing towards more pressure on the ECB to raise interest rates this year.

Ms Schnabel warned that Europe’s plan to shift to a low-carbon economy “poses measurable upside risks to our baseline projection of inflation over the medium term.”

She added: “It would be a serious mistake if governments, faced with rising energy prices, would backtrack from their commitment to reduce emissions.”

The pan-European STOXX 600 closed 0.4 percent lower, and lost 0.3 percent last week.

The European travel and leisure sector sank 1.6 percent and was among the worst performers for the day as countries grapple with an Omicron-led rise in COVID-19 cases.

The STOXX 600 has fallen 1.6 percent since Wednesday as expectations of higher interest rates battered heavyweight technology stocks.

The sector was the worst performer this week, losing around 4.5 percent.

Hawkish signals from the Fed have also dented equity markets. But while weak US payrolls data on Friday somewhat undermined the Fed’s tilt, analysts said rising wages could feed into inflation and push the central bank into tightening policy.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance said: “Inflation is the main concern for the Fed, and they are going to go ahead with rate hikes and potentially balance sheet run-off in order to remove monetary accommodation.

“The report today is unlikely to do anything to change the Fed’s mind.”

The prospect of higher interest rates boosted European bank stocks, making them the best performers this week with a 6.7 percent jump.

Gains in some chipmakers helped limit some losses in the technology sector. Italy’s STMicroelectronics, rose more than 3 percent after posting quarterly revenue above its own estimates.

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German chipmaker Infineon Technologies gained 1.7 percent, taking cues from South Korea’s Samsung Electronics that posted upbeat fourth-quarter results.

Deutsche Bank climbed 1.8 percent to a more than six-month high. The German lender’s finance chief told Handelsblatt in an interview that the firm is confident it will reach a key profitability target this year.

Dutch insurer Aegon rose more than 4 percent to the top of the STOXX 600, after it announced a 50 million euro share buyback.

Meanwhile, Airbus dropped 0.8 percent after reports that Qatar Airways is seeking more than $600 million in compensation from the planemaker over surface flaws on A350 jetliners.

Airbus has said that while it acknowledges technical problems, there is no safety issue.

Polish parcel locker firm InPost plummeted 14.0 percent to the bottom of the STOXX 600 after posting weaker-than-expected quarterly parcel volume growth in the country.

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