Spirited Euro Briefly Stalled by Euro Zone Sentiment and Inf
Inflation rose by 0.2% in March, and consumer confidence dropped to 9.9 points, despite unemployment reaching its lowest level since before the financial crisis began. Also contributing to Eurozone Sentiment and Inf: Rising sovereign bond yields. These are just a few of the issues that are weighing on the European economy. But what about the coronavirus?
Consumer confidence fell 9.9 points in March
The latest survey shows that consumer confidence in Brazil has declined sharply, falling 9.9 points in March compared with the same month last year. The drop was felt in all income groups, but the biggest drop was among households with low purchasing power, with their confidence dropping by more than nine points. This fall in confidence was largely due to households’ concerns about the economy, and the decline in confidence had the greatest effect on household finances.
The Consumer Confidence Index, which measures consumer expectations of future economic conditions, fell by nine points in March compared to February, but the overall level was still much higher than in January. This was the lowest reading since May 2020 and a drop of that magnitude would be significant. However, it remains encouraging for retailers, as the cool winter months have dampened sales of spring fashions. The decline in consumer confidence is particularly crucial for the eurozone, where two thirds of the economy is generated by consumer spending.
Inflation rose 0.2%
Inflation in the euro zone rose 0.2% in June, according to the European Commission. The increase was slower than analysts expected, and is the second consecutive monthly increase above zero. Inflation excluding volatile food and energy rose by 0.9% year-on-year. However, economists predict higher inflation late in the year, as the recovery from a pandemic-induced double-dip recession and recent increases in commodity prices will continue to push up prices. The ECB is confident that the surge in inflation is temporary and will keep its monetary policy loose in order to ensure that the economy continues to grow.
Core inflation fell slightly in February, while headline inflation rose slightly. The core measure of inflation fell to 1.2% in February from 1.4% in January. The eurozone will release its aggregate figure on March 7, but national reports suggest that core inflation fell further than expected. This could signal a gradual recovery in eurozone inflation, which economists had predicted a 0.5% year-on-year increase. Inflation in the euro zone will likely be lower than the rate in January due to a series of government VAT cuts.
Unemployment at its lowest since before the financial crisis began in 2008
In April, the official unemployment rate was just 14.2 percent for all Americans, the lowest level since before the Great Recession started. But this figure does not include the millions of workers who voluntarily left the workforce or those who scaled back their work schedules. This job crisis has been especially hard on low-wage workers and Hispanics. In April, the unemployment rate for black Americans was 15.5 percent, the highest level since the Great Depression began in 1929.
While unemployment rates have been dropping since the financial crisis hit the economy, the number of long-term unemployed has been falling more steadily since the beginning of the recession. In April 2010, nearly 40 percent of unemployed Americans were unemployed for at least six months. Since then, the long-term share of unemployed Americans has dropped, although it is still high by pre-recession standards. The long-term unemployed were the first group to be affected by the recession and the longest-term unemployment rate was only recently reached.
Rising sovereign bond yields contributed to Eurozone Sentiment and Inf
Inflation concerns were exacerbated by the fact that oil prices reached a three-year high, sparking concerns about inflation. The OPEC+ cartel decided to stick to its existing pact to gradually increase oil output, sending prices skyrocketing. However, rising inflation fears have also spread to consuming nations, who are worried that the repercussions of increasing prices will impede their recovery from the recent pandemic. Sovereign bonds, normally considered safe havens, have suffered from the recent deterioration in Eurozone sentiment and inf.
In the wake of the 2008 financial crisis, interest rates on government bonds within the eurozone started diverging, although they had been trending higher for several decades. As a result, some governments were able to borrow at record low interest rates, while others were on the brink of default. This led to a heightened sense of anxiety and a decline in sentiment, which caused investors to demand higher yields on sovereign bonds. This, in turn, led to higher borrowing costs and a drop in bond prices, which led to the loss of money for larger countries.