The inflation data speaks for itself (…) Monetary policy must not miss the opportunity to take timely measures. In the Governing Council of the ECB we have been very clear: the measures depend on the data”.
Joachim Nagel, President of the Deutsche Bundesbank.
The inflation rate in the euro zone again registered a record in March, standing at 7.5% per year, according to preliminary figures from the European statistics agency, Eurostat, in a context of war in Ukraine that has catapulted prices of energy.
In February, inflation was 5.9% for the 19 countries that adopted the single currency, a figure that had already represented the highest level recorded since consumer prices began to be measured in January 1997.
Since November, inflation breaks record after record in all countries.
The rise in consumer prices continues to be fueled by the increase in the prices of oil, gas and electricity in an increasingly marked manner than before.
Energy rates increased 44.7% annually in March, compared to 32% in February. All components of the index were affected.
The increase in food prices (including alcohol and tobacco) accelerated to 5%, after 4.2% in February.
Non-energy industrial goods became more expensive 3.4% annually in March after 3.1% in the previous month), while the prices of services had a slight increase, 2.7% against 2.5% in February.
The countries with the highest increase in inflation, which are already reaching double figures, are the Baltics such as Lithuania (15.6%) and Estonia (14.8%), followed by the Netherlands and Latvia with 11.9 and 11.2%, respectively.
The largest economies such as Spain registered a price increase of 9.8%; Germany with 7.6%; Italy 7% and France 5.1 percent.
The nations that have been least affected by inflation are Malta with 4.6%, France (5.1%), Portugal with 5.5% and Finland with 5.6 percent.
Puzzle for the ECB
Rising inflation fuels a social crisis in Europe as many households struggle to make ends meet.
It is also a puzzle for the European Central Bank (ECB), in charge of ensuring price stability.
The inflation record, well above the central bank’s target of 2% per year, reinforces the pressure for the institution to tighten its monetary policy without delay and, therefore, to increase its interest rates.
But too strict a policy could stunt growth, which has barely recovered from the fallout from the coronavirus pandemic.
The war in Ukraine launched on February 24 by Russia “increases inflation and reduces growth simultaneously,” ECB President Christine Lagarde stressed last week.
On March 10, the ECB lowered its Gross Domestic Product (GDP) growth forecast for this year to 3.7% (vs. 4.2% previously).
At the same time, he raised his inflation forecast to 5.1% (vs. 3.2 percent).
Timely rate hike
Bundesbank asks ECB to act
The European Central Bank (ECB) has to act in the face of record inflation in the euro zone, said Bundesbank President Joachim Nagel, after the increase in prices reached 7.5%, exceeding by a wide margin the central bank’s expectations. .
“The inflation data speaks for itself,” Nagel said in a statement. “Monetary policy should not miss the opportunity to take timely action.”
“In the Governing Council of the ECB we have been very clear: monetary policy measures depend on the data,” he added.
For her part, Isabel Schnabel, a member of the ECB council, mentioned over the weekend that the central bank plans to increase interest rates at some point after the end of its bond purchase program in the third quarter of 2022.
The head of market operations mentioned that net asset purchases will end as long as the data support the expectation that the medium-term inflation outlook will not diminish.
“We will increase the rates some time later, as appropriate, in light of the data that is coming in,” Schnabel stressed.
“The speed of normalization will depend on the economic consequences of the war, the severity of the inflationary shock and its persistence,” Schnabel said.
Inflation alone justifies monetary tightening, not least because record low unemployment heralds rising wages, a precondition for lasting inflation.
But tightening monetary policy now may derail an economy already near stagnation (Reuters).