Inflation in Europe soared to another record, according to new EU figures released Friday, in a fresh sign that rising energy prices fuelled by Russia's war in Ukraine are squeezing consumers and adding pressure on the central bank to raise interest rates.
Consumer prices in the 19 countries that use the euro currency rose by an annual rate of 7.5 per cent in March, according to the European Union statistics agency, Eurostat.
The latest reading smashed the high set just last month, when it hit 5.9 per cent. It's the fifth straight month that inflation in the eurozone has set a record, bringing it to the highest level since recordkeeping for the euro began in 1997.
Rising consumer prices are a growing problem around the world, making it more difficult for people to afford everything from groceries to their utility bills. Spiking energy costs are the main factor driving inflation in Europe, with those prices surging 44.7% last month, up from 32 per cent in February, Eurostat said.
Oil and gas prices had already been rising because of increasing demand from economies recovering from the depths of the COVID-19 pandemic. They jumped higher after Russia, a major oil and gas producer, invaded Ukraine, on fears that sanctions and export restrictions could crimp supplies.
At an outdoor market this week in Cologne, Germany, shopper Andreas Langheim bemoaned how life was getting more expensive.
“I can see the effect of increasing prices, especially here at the market," Langheim, 62, said as he picked up some bread from a bakery van. "Everything is more expensive now.”
The latest figures make it more urgent for the European Central Bank to get off the sidelines and take action, analysts said. The bank is balancing record inflation with the threat that the war may hurt an economy under pressure. Last month, it sped up its exit from economic stimulus efforts to combat inflation, but has not taken more drastic steps.
“We think that the ECB will soon conclude that it can't wait any longer before starting to raise interest rates,” Jack Allen-Reynolds, senior Europe economist at Capital Economics, said in a report.
Other central banks have started raising rates, including in the U.S., where inflation has soared to a 40-year high of 7.9%. European countries that don't use the euro, including Britain, Norway and the Czech Republic have done the same.
In the eurozone, there were price increases for other categories of spending besides energy.
Food, alcohol and tobacco costs rose 5%, compared with 4.2% in the prior month, while prices for goods like clothing, appliances, cars, computers and books rose 3.4%, up from 3.1%; and service prices rose 2.7%, versus the previous 2.5%.
Italian Premier Mario Draghi, a former European Central Bank president, outlined how the problem hits households.
“Inflation is rising because raw materials prices are going up, in particular those for foodstuffs. Those are the ones that hit hardest a family's buying power,'' Draghi told foreign journalists Thursday. “Shortages in some raw materials creates a bottleneck in production and forces further price hikes.''
Draghi said that as long as inflation remains temporary, governments can respond with budgetary measures, such as payments to help low income families with higher heating and electricity costs. But if it becomes a longer-term issue the response will have to be structural, he said.
