Eurozone inflation rocketed in March to set a new record as Russia’s invasion of Ukraine drove energy prices higher, thus adding pressure on the European Central Bank to tighten policy earlier than planned.
Consumer price annual inflation jumped to 7.5 percent from 5.9 percent in February, preliminary data from the statistical office Eurostat showed Friday. Economists had forecast 6.6 percent inflation.
Core inflation, which excludes prices of energy, food, alcohol and tobacco, accelerated to 3.0 percent from 2.7 percent. Economists were looking for a 3.1 percent increase.
The latest headline inflation figure is more than triple the ECB target of 2.0 percent.
Economists widely expect Eurozone inflation to average 6.0 percent or higher this year.
Among the main components, energy inflation surged to 44.7 percent in March from 32.0 percent in February.
Food, alcohol & tobacco prices rose 5.0 percent compared with 4.2 percent in February.
Prices of non-energy industrial goods rose 3.4 percent after a 3.1 percent increase in February. Services costs climbed 2.7 percent following a 2.5 percent gain in the previous month.
Inflation figures across Europe are setting new records amid runaway energy prices that are driven by concerns regarding sanctions and supply of Russian gas.
Germany, which depends considerably on Russian gas, has taken steps to curtail energy consumption over fears that supplies may be halted due to price disputes.
Official data showed this week that Germany’s consumer price inflation jumped to 7.3 percent in March, its highest level in over four decades, as prices of natural gas and mineral oil products increased markedly since the war broke out.
Headline inflation hit 9.8 percent in Spain, the highest since 1985, and 8.31 percent in Belgium, the fastest since 1983. Italy’s inflation rose to 6.7 percent, its highest level since early 1990s.
The EU measure of harmonized inflation climbed to record highs of 7.6 percent and 5.1 percent in Germany and France, respectively, during March.
Eurostat data showed that Lithuania had the highest inflation of 15.6 percent among euro area states, Malta had the lowest at 4.6 percent.
The ECB is trying to gradually raise interest rates later this year without hurting growth. Record high inflation adds pressure on the central bank to consider hiking rates earlier than planned.
ECB President Christine Lagarde said this week that the economic impact of the Ukraine war has resulted in a “supply shock” that simultaneously pushes up inflation and reduces growth.
Energy prices are expected to stay higher for longer, the pressure on food inflation is likely to increase and manufacturing bottlenecks are set to persist, she added.
Capital Economics has forecast three quarter-point hikes from the ECB this year as the firm expects inflationary pressures to remain strong and core inflation to keep rising for the rest of the year.
“We think it won’t be long before the Bank starts raising interest rates,” Capital Economics economist Jack Allen-Reynolds said.
“Without signs of higher wage growth that could point to a wage-price spiral starting or de-anchoring inflation expectations, we expect some normalisation of monetary policy in the coming months with an end to quantitative easing in the third quarter of the year and rate hikes in the fourth quarter of 2022 and first quarter of 2023,” ING economist Bert Colijn said.