Spiralling energy bills and disruptions
caused by the war in Ukraine caused consumer prices in the eurozone to surge
by a new record of 7.5 percent, EU statistics agency Eurostat said Friday.

Last month’s rise marked a further acceleration in inflation from February,
which at 5.9 percent year-on-year was already a eurozone record, it said.

The surge has been fuelled by a 44.7-percent hike in energy prices over the
year as Europe found itself caught in an oil and gas crunch due to tensions
with Russia over its invasion of Ukraine.

European Central Bank (ECB) president Christine Lagarde warned Wednesday that
a prolonged Ukraine conflict will keep energy prices and the cost of living
spiralling, blighting a post-Covid recovery.

Similar leaps in inflation have been seen in the United States where the
Federal Reserve is committed to a long series of interest hikes to cool the
economy and stem the price hikes.

But the ECB is reluctant for now to take similar measures, convinced that the
rise in the cost of living is linked to the war as well as lingering
disruptions to the global supply chains brought on by the coronavirus
pandemic.

But given inflation’s relentless pace, analysts said Lagarde would soon have
no choice but to rethink her policy.

“With euro-zone inflation rising even further above the ECB’s forecast, and
likely to remain very high for the rest of the year, we think it won’t be
long before the Bank starts raising interest rates,” said Jack Allen-Reynolds
at Capital Economics.

– ‘No painless options’ –

Of particular concern for policy makers is core inflation, which strips out
volatile components such as energy and food. It soared to 3.0 percent in
March, Eurostat said.

This is a full percentage point on top of the ECB’s target of two percent and
will give armour to critics that argue for interest hikes to face down
inflation.

“The inflation data speak for themselves,” said Joachim Nagel, the central
bank governor from Germany, Europe’s biggest economy that traditionally wants
stronger medicine against higher prices.

“Monetary policy should not pass up the opportunity for timely
countermeasures,” he said.

But economists warn that raising interest rates would put the brakes on the
post pandemic recovery, with officials already warning that current forecasts
for growth in Europe are certain to take a hit due to the war.

“The question is whether the worst is behind us now and that seems doubtful,”
said Bert Colijn of ING bank.

“The ECB is running out of painless options to battle current economic
problems, so we expect it to tread carefully,” he added.