Ukraine war pushes eurozone inflation to record 7.5%

The Russian invasion of Ukraine has brought the eurozone into a new economic reality in which high inflation is no longer a temporary headache and seriously threatens to undo the gains of the post-pandemic recovery.

Inflation in March reached 7.5% annually, an all-time high for the eurozone.

The figure represents an impressive increase compared to a year ago, when inflation was 1.3%, well below the European Central Bank’s 2% target.

The March data is the first Eurostat reading to take into account the fallout from the Ukraine war, which has now entered its second month with no resolution in sight.

Annual inflation, the rate at which the prices of goods and services change over time, has been rising steadily since late summer, when a mismatch between supply and demand sent gas prices soaring. .

The trend continued throughout the winter as low temperatures pushed up electricity consumption and worsened considerably after President Vladimir Putin gave the order to invade Ukraine.

The conflict plunged the global economy, still reeling from the pandemic, into uncertainty and turmoil. A wide range of Western sanctions has disrupted trade with Russia, the EU’s main energy supplier.

The bloc gets more than 40% of its gas from Moscow, mostly through pipelines. Even if the gas has so far been exempt sanctions, the war has intensified price volatility across the continent.

The Dutch Securities Transfer Fund, Europe’s leading benchmark, shows that prices remain stubbornly above the €100 per megawatt hour mark, compared with less than €20 at the start of 2021.

The March inflation reading reflects this new normal: the energy sector is up an impressive 44.7%, putting the entire eurozone on an upward trajectory.

Food, alcohol and tobacco increased by 5% compared to 1.1% a year ago due to seasonal factors and higher transport and fertilizer costs.

No member state has managed to escape high inflation, with some even posting double-digit figures: Lithuania (15.6%), Estonia (14.8%), the Netherlands (11.9%) and Latvia (11. two %).

The situation has become politically toxic for some governments, which are under enormous pressure to mitigate skyrocketing bills. Spain and Portugal have successfully lobbied their peers to implement exceptional caps on electricity prices.

The worrying figures are bound to pile more pressure on the European Central Bank, whose mandate is to maintain price stability.

The institution had insisted for months that high inflation was a temporary phenomenon as a result of the economic recovery and the generous fiscal stimulus injected by governments. But the war has thrown analysis out the window and made high prices a long-term challenge.

“Europe is entering a difficult phase. We will face, in the short term, higher inflation and slower growth. There is considerable uncertainty about how big these effects will be and how long they will last,” ECB President Christine Lagarde told early this month. week at an event in Cyprus.

“The longer the war lasts, the higher the costs are likely to be.”

The ECB is expected to end its pandemic-era quantitative easing program in the summer and possibly approve a first rate hike in the fourth quarter of this year.

Interest rates in the eurozone have been negative since 2014, a policy introduced by Lagarde’s predecessor, Mario Draghi, as a response to slow inflation following the European debt crisis.

When inflation rises, interest rates are expected to do the same. Money lenders demand higher rates to ensure they don’t lose value when borrowers pay them in the future.

High inflation is not a problem unique to the eurozone. Other advanced economies have also been affected by the consequences of the war: the US registered an inflation of 7.9% in February, while the United Kingdom registered a rate of 6.2%. In Canada, inflation rose to 5.7% annually.

Previous post Watergate Cooperative on the market for $2.4 million
Next post Business News | Stock Market News | financial news
%d bloggers like this: