Eurozone inflation reaches 7.5% as energy prices soar

PARIS. Soaring energy and food prices fueled by Russia’s continued aggression against Ukraine pushed inflation in Europe last month to levels not seen in four decades, with prices in the 19 countries that use the euro rising by 7 .5 percent, according to data released Friday by Statistics Europe. agency.

The unprecedented rise in prices from already record levels was the latest indicator of how quickly the impact of the war in Ukraine is reverberating through Europe’s economy, putting pressure on the european central bank start raising interest rates, possibly before the end of the year.

“The rate of inflation has once again been considerably higher than we expected,” Joachim Nagel, president of Germany’s Bundesbank, said on Twitter. “Monetary policy should not miss the opportunity to take timely countermeasures.”

Rising energy costs have posed the biggest threat, driving up costs for European businesses and households and battering Europe’s economic recovery from the Covid-19 pandemic. Energy prices soared nearly 45 percent in March from a year earlier as the conflict has caused skyrocketing prices for natural gas, electricity and oil.

Europe and the United States are making ambitious plans to reduce dependence on Russian energy to counter the threat to the European economy and energy security. Last week, the United States agreed to increase natural gas shipments to help wean Europe off Russian energy.

Germany, the largest user of Russian energy in Europe, also aims to halve its imports of Russian oil and coal this year, and end its dependence on Russian natural gas by mid-2024. Europe’s largest economy , Germany, is already suffering an economic blow from the crisis. The German Council of Economic Experts, which advises the government in Berlin, this week cut its 2022 growth forecast by more than half, to 1.8 percent.

Adding to the economic strain in Europe is rising food costs, as supplies of wheat, corn and barley were trapped in Russia and Ukraine, which produce a significant share of those crops for global consumption.

Unprocessed food prices rose at an annual rate of 7.8 percent last month, Eurostat said. Since the invasion, world prices for wheat have increased by 21%, barley prices by 33% and some fertilizers by 40%, threatening a food crisis

Even without food and energy, core inflation in the eurozone also continued to rise as goods and services inflation accelerated.

The largest overall increases were recorded in Lithuania (15.6%), Estonia (14.8%) and the Netherlands (11.9%). Consumer prices in Germany rose 7.6 percent compared to last year and reached 9.8 percent in Spain.

On Wednesday, central bank president Christine Lagarde said she hoped food and energy prices in the eurozone would stabilize at high levels, keeping the area from falling into a quagmire of high inflation and stagnant growth. increase. The bank recently announced plans to scale back some of its bond-buying stimulus measures.

But analysts say there is much more pain ahead as the war keeps upward pressure on prices and persistently high energy costs weigh on the economy. The Kremlin’s threat to cut off European supplies of Russian oil and gas unless payments are made in rubles has raised the specter of even higher energy costs.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note to clients that if Russia cuts gas supplies to Europe, prices will soar, though Moscow is unlikely to take this step. A ceasefire agreement between Russia and Ukraine, if one is reached, would send energy prices plummeting.

But governments across Europe are taking no chances, promising billions of euros in subsidies to shield businesses and households from the pain of rising energy bills that have hit consumers’ spending power.

“Households are becoming more pessimistic and could cut their spending,” Lagarde said in a speech in Cyprus on Wednesday. “The longer the war lasts, the greater the economic costs and the greater the probability that we will end up in more adverse scenarios,” he said.

Denmark is earmarking 2 billion Danish kroner ($299 million) to spend on “heat checks” for more than 400,000 hard-hit households. France is limiting a rise in regulated electricity costs to 4 percent and spending a total of €26 billion to help businesses and households offset higher gas and electricity bills.

In Germany, where the war in Ukraine and inflation have also put significant pressure on consumer confidence, Chancellor Olaf Scholz’s government has approved €4.5 billion in tax relief measures.

The war has also added to the strain on supply chains already strained by the Covid-19 pandemic, and continues to put pressure on producer prices and the cost of goods for consumers.

“The question is whether the worst is over, and that seems doubtful,” Bert Colijn, senior euro zone economist at ING Bank, wrote in a note to clients, adding that the prospect of double-digit inflation “doesn’t matter.” can be ruled out.” in this point.”

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