Inflation in the euro zone hit a record high for the fourth month in a row in February, raising questions about when the power plant bank should step in to ease the pain of people’s wallets while Russia invasion of Ukraine shakes the global economy.
Reading intensifies a policy dilemma for the European Central Bank (ECB), which must convey a meaning of calm in the midst of war market torments but also respond to editing price pressures.
Consumer price in the 19 countries this use the euro rose by 5.8% per year in February, European Union statistics agency Eurostat reported on Wednesday, beating expectations for 5.4% and also confusing the ECB’s own projection for a drop.
the latest the numbers underline the continuing pain for mainland consumers and stack more pressure on the ECB struggling with with when and how raise interest rates to reduce inflation.
the latest the inflation reading broke the record of 5.1% set last months to reach highest level since record keeping for euro started in 1997.
Inflation in Europe, as in other major economies, has been fueled by soaring energy prices and the problem will be complicated by Russia invasion of Ukraine.
Russia, grand oil and gas producer, was hit with sanctions and export restrictions which have raised fears that supplies could be cut off although this has yet to materialise.
At 32% jump in energy costs have fueled inflation last months, but prices for unprocessed foods have been also up clearly, rising 6.1% and making inflation particularly painful for low income families.
With soaring energy prices due to the Russian war in Ukraine, inflation is almost certain to accelerate even more in coming months, analysts say, and could average around 5% or more this year, more than twice the ECB’s 2% target.
As price pressure had been building for months, the ECB was almost certain to accelerate its exit from the ultra-easy policy at his meeting next week.
But the war has thrown those plans in turmoil, leaving the policy uncertain prospects.
the problem for the ECB is that while the war is likely to push prices above all year forecasts it is negative for both growth and inflation in the longest term a horizon that is more relevant for the center bank.
High energy costs are undermining household power purchases, eroding corporate margins and weighing on investment. They are also likely to have an impact on price of other goods and services, especially food prices, natural gas being the main cost in fertilizer production.
At the same time, financing conditions have already tightened, mainly due to the fall share the prices, in particular a 25% drop in the euro zone bank index since mid-February.
ECB board member Fabio Panetta, an outspoken policy dove has already made the case for holding off on no further policy contraction.
ECB hawks say inflation is already high and wide, so the maintenance of an extraordinary stimulus is unwarranted and a more neutral policy framework would be appropriate.
Bundesbank President Joachim Nagel said on Wednesday that, with German inflation should be higher this year that a recently raised forecast, the ECB should keep focus on standardization policy.
Core inflation is also rising quickly, suggesting that he is no longer just volatile items this push up prices.
Inflation excluding food and energy prices accelerated to 2.9% in February from 2.4% the previous month and an even narrower measure, which excludes alcohol and tobacco, rose to 2.7% from 2.3%.
falcons also maintain that the ordinary people feel more and more pain of high inflation, so it is also politically risky for the center bank do not act.
Markets, whose price in 50 basis points of interest rate hikes this year just a few weeks ago I only see about 15 bases points worth of increases. German 10-year returns, in positive territory in February, hit minus 0.41% on Wednesday as investors revalue the policy prospects.
The ECB will next meet on March 10 and the policy decision remains wide open and subject to development in Ukraine.