Grigory Burenkov of Wheelerson Management Credits ECB Actions for Eurozone’s Surprising Inflation Dip

CEO and owner of Wheelerson Management Ltd. Grigory Burenkov is hopeful that the economic indicators of the eurozone will improve.

The start of this year pleasantly surprised not only many experts but also ordinary Europeans in the eurozone. In January, inflation in its key economies, Germany and France, decreased more than analysts and various specialized media had forecasted. This instills cautious optimism regarding the improvement of the economic situation throughout the eurozone, especially against the backdrop of the EU barely avoiding recession at the end of last year and the International Monetary Fund lowering its growth forecast for the eurozone in 2024 from 1.2% to 0.9%.

But for now, onto the good news. In Germany, price growth for the past month was 3.1% on an annual basis, 0.7% less than in December 2023, and 0.1-0.2% better than the level predicted by leading experts. Indeed, the weakness of the German economy was linked to the decline in the main indicators of the eurozone.

In France, according to Eurostat, inflation slowed by the same 0.7% — from 4.1% in December 2023 to 3.4% in January 2024. Analysts had assumed that price growth would be between 3.5% and 3.7%. France managed to reduce the level of inflation to the lowest values in the last two years.

“This is the result of a large number of factors and actions,” explains Grigory Burenkov. “For example, the economic policy conducted by the leadership of these countries. Often, the results of the measures they take do not have an immediate effect but manifest over time. Of course, a significant role was played by the reduction in energy prices. Many experts emphasize that it was thanks to this that it was possible to slow down not only the increase in the cost of goods and services but also to compensate for the closure of several anti-crisis programs, which, despite their positive effect, stimulated inflation growth.”

According to preliminary data from the Statistical Office of the European Union, the decrease in price growth in Germany and France also affected the inflation of the eurozone as a whole. In January, it slowed to 2.8% compared to 2.9% in December 2023.

“I am convinced that we have tamed this greedy beast,” referring to inflation, said the president of the German central bank and one of the members of the Governing Council of the European Central Bank, Joachim Nagel, even before the announcement of the statistical data.

Indeed, the eurozone’s efforts to contain prices have yielded results. Here, it is particularly worth highlighting the role of the ECB, which did almost everything possible to stop inflation. Almost every step taken by the regulator in this direction faced tough discussions, both in the media and from political platforms. Nonetheless, the ECB is following its clear course towards reducing inflation in the eurozone to the target 2%.

“The ECB’s policy is decisive, systematic, quite tough, but very effective,” believes Grigory Burenkov. “The regulator raised key interest rates ten times in a row, pushing them to a record high. And this also contributed to the fight against inflation. Now, the ECB is just as determined to keep rates at their maximum level to ensure that the current reduction in price growth is a long-term trend.”

However, both Joachim Nagel and his immediate superior at the ECB, Christine Lagarde, acknowledge that a number of factors could change this trend. High price pressure, unstable electricity prices, the growing possibility of full-scale military actions in the Middle East — all of these can again cause inflation to rise. However, one of the most painful issues here is the future increase in wages.

“Of course, the factor of the record low level of unemployment in the euro area must be considered,” shares the concerns Grigory Burenkov. “By the end of 2023, it had dropped below 6.5%. The demand for labor is quite large, and therefore, an increase in wage demands should be expected. Quite definite trends towards this were very clear, particularly in Germany. I agree with the opinion that workers’ and employees’ desire to compensate for the earlier experienced rise in consumer prices through an increase in their wages seems quite understandable.”

Many experts say that inflation will soon leave the list of the EU’s top problems. It will definitely not reach its previous peak double-digit figures. On the contrary, despite the influence of the mentioned negative factors, there is a huge probability that inflation will soon firmly settle on the trajectory to its 2% target. This would make it possible to lower the key rate of the European regulator by spring-summer 2024, in turn, opening access to cheaper credits for both businesses and ordinary Europeans.

“I“I really want to believe that the leading economies of the EU will continue to surprise experts with good indicators,” says Grigory Burenkov. “I hope that the eurozone will finally recover from the energy shock, as well as a number of other factors, and will recover at a faster pace in 2024 than the 0.9% predicted by the International Monetary Fund.”

Grigory Burenkov is an economist, analyst, CEO, and owner of Wheelerson Management Ltd.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes