The Day at a Glance | March 2 2022

The Top

*Inflation in Europe reached a new record in February (5.8% annual).

*Ukraine assures it will have a new round of negotiations with Russia.

*OPEC+ maintains gradual increases (400 thousand daily barrels) for crude oil production in April. Oil exceeded $110 dpb.

*ADP figures on private employment in the United States exceeded estimates in January (475k vs 378ke.).

*Powell will testify before Congress; Biden affirms that his government`s priority is to control inflation.

*Remittances maintained an increasing trend in January and amounted to $3,931 million dollars.

Economic environment

Inflation in Europe continues to accelerate. The most recent consumer inflation data in Europe once again surprised to the upside in February, after logging a 0.9% monthly increase and a 5.8% (vs 5.6%e.) record annual rate of inflation. Underlying inflation also accelerated more than expected by recording a 0.5% monthly increase – and 2.7% annual (vs 2.5%e.). Energy costs keep pushing the inflationary index upwards, with risks of seeing greater acceleration because of the conflict in Ukraine (which has boosted oil and natural gas prices). On top of this, there are rising food prices, especially wheat and corn, which have also logged important increases in recent weeks because of the conflict in Eastern Europe. With this context, a slowdown is not expected to be observed in Europe`s inflation during the next few months, and it`s estimated that the consumer price index could surpass levels of 6% annual in March. These circumstances put the European Central Bank in a complicated position as it expected inflation to increase at a slower pace because of the conflict in Ukraine (a 0.3%-0.4% drop in GDP, according to Chief Economist of the ECB, Philip Lane), albeit persistent inflationary pressures. Isabel Schanbel, member of the ECB, assured that given the current situation, it`s unlikely that inflation will return to 2% levels in the medium term. However, increasing interest rates ahead of time to contain inflation could have a negative impact on Europe`s economic recovery and worsen the effects that the conflict in Ukraine will have on growth. With this, it`s possible that the ECB may have to maintain a slow and gradual process of withdrawing stimulus, with the risk of losing control of inflation. Next week (March 10), the ECB will hold a meeting to make a monetary policy decision and will make new macroeconomic forecasts public. The assessment it makes regarding current inflationary and growth conditions will be crucial for Europe`s future monetary policy.