Macro Analysis /

UniCredit Euro Inflation Update (March 2022)

    Marco Valli
    Marco Valli

    Head of Macro Research

    Loredana Maria Federico
    Tullia Bucco
    25 March 2022
    Published by
    • Next Friday, Eurostat will publish the preliminary estimate of eurozone HICP for March. We forecast headline inflation to increase by a full percentage point, to 6.9% yoy, driven by broad-based price rises.
    • Fuel costs are set to surge, reflecting the spike in oil prices following the outbreak of the Russia-Ukraine conflict. We estimate that energy alone might have added 0.7pp to the overall inflation rate. Core inflation will likely have accelerated to slightly above 3% yoy (from 2.7%) for the first time since the inception of the euro, amid bottlenecks and indirect effects from higher energy prices. Food inflation will probably have risen further, climbing above 5% yoy.
    • Recent government measures aimed at mitigating the increase in the price of motor fuels add a layer of uncer-tainty to inflation estimates for the coming months. Today, we have included in our projections the fiscal measures announced in Germany, France and Italy – just to name the largest countries – which are expected to lead to a measurable (although temporary) drop in gasoline and diesel prices.
    • On page 3, our charts show that pipeline price pressure was already strong and broad-based before the geopo-litical shock and is now intensifying further.
    • On page 4, we perform the usual scenario analysis for eurozone headline inflation under different trajectories for oil prices and EUR-USD. The first scenario assumes that these two variables will remain at their current levels throughout the forecast horizon. The second assumes that they will move in line with current market expecta-tions.
    • On page 5, we provide charts and tables that show the recent dynamics of market-based inflation expectations measured by inflation-linked bonds and zero-coupon inflation swaps. We also show key market indicators for BTPei and for a selection of ILBs issued by Germany, France and Spain.

    This publication contains a monthly update of our inflation forecasts for EMU (HICP and HICP ex tobacco), France (CPI ex tobacco), and Italy (FOI ex tobacco). The main aim is to support trading strategies that use our input to calculate carry and forward prices for inflation-linked bonds indexed to eurozone, French and Italian inflation.