Eurozone’s supply chain issues could remain elevated until year end

Data released on Wednesday showed Eurozone’s Inflation came in at 5.1% in January, on a yearly basis, according to Eurostat.

Core figures rose by 2.3%, matching the 2.3% consensus forecasts. Analysts at Danske Bank revise their 2022 forecast for HICP (inflation) and core inflation to 4.7% and 2.4%, respectively, due to higher commodity and goods price inflation.

The euro area recovery from the pandemic has been accompanied by protracted supply chain bottlenecks that have stifled activity, especially in the manufacturing sector. After supplier delivery times lengthened to unprecedented levels during 2021, there have been tentative signs of easing supply chain stress of late.

HICP inflation in 2022 is expected to be around 4.7% due to higher commodity and goods price inflation pressures and expect euro area core inflation to average 2.4% in 2022.

Upside risks continue to stem particularly from a further escalation in the Ukraine-Russia tensions, that could send gas prices sharply higher.

Stronger than expected commodities demand from a rebound in travelling activity and the Chinese cyclical recovery also pose upside risks in our view.