By John Ikani
Eurozone inflation soared in February to a record high of 5.8%, mainly on the back of surging energy prices.
The acceleration, from 5.1 percent in January, was announced as oil and gas prices rocketed even higher over fears about the effect on supplies from Russia’s full-scale invasion of Ukraine.
The European Union’s official statistics agency Eurostat says further spikes are likely in the near term as the war in Ukraine is expected to drive up the cost of living and increase pressure on the European Central Bank (ECB) over when to adjust monetary policy.
For the ECB, the war does mean a rethink of monetary policy however, quick monetary tightening on the back of that would result in extra negative effects on an economy already under pressure.
Eurostat said energy prices in February jumped 31.7 percent, faster than the 28.8 percent recorded in January. Food prices were up 4.1 percent in February, compared with 3.5 percent the previous month.
ECB vice-president Luis de Guindos described the inflation figure for February as “a negative surprise” and predicted that the war in Ukraine would raise prices further and hit growth.
The surge in inflation comes at a difficult time for European leaders as they warn their citizens of the “price to pay” from tough sanctions imposed on Russia, the EU’s leading foreign gas supplier.
Policymakers fear soaring inflation could choke off the EU’s recovery from the coronavirus pandemic.
Similarly, analysts at Capital Economics predicted inflation would hit six percent in the coming months before falling back to about four percent, “most likely” at the end of the year. That is still double the ECB’s target of about two percent.
Capital Economics warned that not only energy prices, but also food prices, could rise further due to the conflict in Ukraine, a major wheat exporter.
The EU and Western allies have imposed sweeping sanctions on Moscow over President Vladimir Putin’s invasion. They have unleashed turmoil on Russia’s economy and forced the Kremlin to impose capital controls.
