Consumer prices in the euro zone rose a record 7.5 percent in March from a year earlier, mounting pressure on the European Central Bank to tighten ultra-loose monetary policy faster than planned.
The main factors driving eurozone inflation were higher energy and food prices, which have risen since Russia’s invasion of Ukraine affected supplies of oil, gas and other basic products.
the quick estimate by the increase in the harmonized index of consumer prices in March compared with the previous record of 5.9 percent set in February and was well above the average forecast of 6.6 percent of economists polled by Reuters.
Rising eurozone consumer prices well above the ECB’s 2% target has prompted some of its policymakers to ask the central bank to cool demand by bringing forward its plan to end net asset purchases and raising interest rates for the first time in more than a decade.
Investors are pricing in 0.63 percentage point of rate hikes by the ECB before the end of this year, which would take its main deposit rate into positive territory for the first time since 2014, above its current all-time low of minus 0.5 percent. penny.
However, some ECB lawmakers fear that the war in Ukraine could plunge Europe into recession this yearwhile the sharp increase in the cost of living could undermine any rebound in consumer demand generated by the lifting of coronavirus restrictions.
“They are being divided into two directions at the ECB,” said Spyros Andreopoulos, senior European economist at BNP Paribas and a former ECB staffer.
“The intention was to get out of the emergency policy stance and get out of negative rates this year, and my feeling is that most people at the ECB would have agreed with that,” Andreopoulos said. “But now they are worried that the war could have a big impact on growth in the short term, delaying the takeoff until December.”
Several ECB lawmakers have said they expect the central bank to raise rates this year and some, such as Klaas Knot from the NetherlandsThey’ve said they might do it twice this year.
But the central bank has so far only announced plans to stop net bond purchases for september, when it will decide whether inflation will remain strong enough to justify a rate hike. That contrasts with the US Federal Reserve and the Bank of England, which have already begun what are expected to be a series of rate hikes this year in response to soaring inflation.
“We have opposing forces,” Philip Lane, the ECB’s chief economist, told CNBC on Friday. “We have the energy shock and the prospect of second-round effects that drive inflation, [while] on the other hand . . . the weakening of feeling [and] the fact that real incomes will be affected by high energy prices.”
Jack Allen-Reynolds, senior economist at Capital Economics, predicted that the ECB would raise rates three times this year by a total of 0.75 percentage points, saying: “The ECB will soon conclude that it cannot wait any longer before it starts raising rates. interests. fees.”
In March, energy prices across the euro area rose to an all-time high of 44.7 percent from a year earlier, while unprocessed food prices advanced 7.8 percent, Eurostat said. on Friday.
Even excluding more volatile energy, food, alcohol and tobacco prices, core inflation rose from 2.7% in February to 3% in March, underscoring how price pressures are becoming more widespread.
The rise in inflationary pressures was underlined by the 2.5 percent rise in eurozone consumer prices between February and March, a record monthly rise.
Inflation is expected to continue rising as the Ukraine war adds to the turmoil in energy markets and combines with China’s “zero-Covid” lockdowns of key industrial areas to intensify supply chain problems that they are leaving companies without materials.
Eurozone manufacturers reported the biggest price increases for products leaving their factories since data began to be collected in the 1990s, according to the latest survey of purchasing managers released by S&P Global on Friday.