Eurozone inflation reached 7.5% in March, a fresh record, as the Russian invasion of Ukraine pushed up energy and food bills. A month earlier the annual rate stood at 5.9%. Even that was well above the 2% regarded as consistent with price stability.
The reading handed the European Central Bank a problem. It has to steady prices without hurting growth in an economy still trying to recover from the coronavirus pandemic that began in 2020. Some economists had started to ask whether the eurozone would slide into recession in 2022.
May brought another high
The next records came quickly. Eurostat data released on Tuesday, May 31, put inflation across the 19 countries sharing the euro at 8.1 percent in May, up from 7.4 percent in April. Forecasts had pointed to 7.7 percent.
Energy costs, up 39.2 percent, drove the record, along with a 7.5 percent rise in food, alcohol and tobacco. Headline inflation now ran at four times the ECB target. The surge began with supply chain problems after the pandemic, and the war in Ukraine fueled it further. Western countries had also imposed unprecedented sanctions on Moscow.
National figures for May beat forecasts too. Germany recorded an annual 8.7 percent on preliminary numbers, against an expected 8 percent. France posted 5.8 percent, up from 5.4 percent in April, and Spain 8.5 percent, above the 8.1 percent economists had predicted.
The ECB and the oil ban
Policymakers at the bank were apparently fretting over underlying prices, and economists doubted whether measures announced by President Christine Lagarde and chief economist Philip Lane would be enough. The ECB’s next meeting was set for June 9, when it was due to formally end a bond purchase scheme at the end of June and keep signaling rate hikes.
Lagarde had said earlier in May that she expected a rate rise at the July meeting. “Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter,” she wrote in a blog post.
On Monday, European leaders agreed to ban 90 percent of Russian crude oil by the end of the year, a step that threatened to push prices higher still. European Council President Charles Michel said it would immediately affect 75 percent of Russian oil imports.
France shrinks
French data landed the same Tuesday. INSEE reported that the economy contracted 0.2 percent in the first quarter, after a 6.8 percent recovery the previous year. Household spending power fell 1.9 percent over the three months, and inflation reached 5.2 percent in May, the first time overall prices had crossed five percent since 1985.
The figures added to trouble for President Emmanuel Macron, who was re-elected in April on a pledge to defend spending power and faces parliamentary elections starting June 12.
Sources
- Eurozone Inflation Hits Record High in March at 7.5% as Energy and Food Prices Soar – KAOHOON INTERNATIONAL
- Eurozone inflation hits another record high as food and energy prices soar
