PARIS — Soaring energy and food prices driven by Russia’s continued aggression against Ukraine pushed inflation in Europe last month to levels not seen in four decades, with prices in the 19 countries that use the euro soaring 7.5 percent, according to data released Friday by Europe’s statistics agency.
The unprecedented run-up in prices from already record levels was the latest marker of just how rapidly the impact of the war in Ukraine is coursing through Europe’s economy, putting pressure on the European Central Bank to begin raising interest rates, possibly before the end of the year.
“The rate of inflation has once again come in considerably higher than we expected,” Joachim Nagel, the president of Germany’s Bundesbank, said on Twitter. “Monetary policy should not pass up the opportunity for timely countermeasures.”
Surging energy costs have posed the biggest threat, causing a sharp spike in costs for European businesses and households and lashing Europe’s economic rebound from the Covid-19 pandemic. Energy prices rocketed nearly 45 percent in March from a year earlier, as the conflict has caused dizzying jumps in natural gas, electricity and oil prices.
Europe and the United States are making ambitious plans to reduce reliance on Russian energy to offset the threat to the European economy and energy security. Last week, the United States agreed to increase shipments of natural gas to help wean Europe off Russian energy.
Germany, the biggest user of Russian energy in Europe, is also aiming to slash in half its imports of Russian oil and coal this year, and end its dependence on Russian natural gas by the middle of 2024. Europe’s largest economy, Germany is already suffering an economic blow from the crisis. The German Council of Economic Experts, which advises the government in Berlin, this week slashed its forecast for growth in 2022 by more than half, to 1.8 percent.
Adding to the economic strain on Europe are surging food costs, as supplies of wheat, corn and barley remained trapped in Russia and Ukraine, which produce a major portion of those crops for world consumption.
Prices for unprocessed food rose at an annual rate of 7.8 percent last month, Eurostat said. Since the invasion, global wheat prices have increased 21 percent, barley 33 percent and some fertilizers 40 percent, threatening a food crisis.
Even without food and energy, core inflation in the eurozone also continued to rise as inflation in goods and services accelerated.
The biggest overall increases were recorded in Lithuania (15.6 percent), Estonia (14.8 percent) and the Netherlands (11.9 percent). Consumer prices in Germany leaped 7.6 percent compared with last year, and 9.8 percent in Spain.
On Wednesday, the central bank’s president, Christine Lagarde, said she expected food and energy prices in the eurozone to stabilize at high levels, allowing the area to avoid falling into a quagmire of high inflation and stagnant growth. The bank recently announced plans to scale back some of its bond-buying stimulus measures.
But analysts say much more pain lies ahead, as the war keeps upward pressure on prices and persistently high energy costs reverberate through the economy. The Kremlin’s threat to cut off European supplies of Russian oil and gas unless payments are made in rubles has raised the specter of even higher energy costs.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note to clients that should Russia cut off gas to Europe, prices would soar, although Moscow was unlikely to take this step. A cease-fire agreement between Russia and Ukraine, if one is reached, would send energy prices tumbling.
But governments around Europe are taking no chances, pledging billions of euros in subsidies to shield businesses and households from the pain of surging energy bills that have hurt consumer purchasing power.
“Households are becoming more pessimistic and could cut back on spending,” Ms. Lagarde said in a speech in Cyprus on Wednesday. “The longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios.”
Denmark is earmarking 2 billion Danish crowns ($299 million) to spend on “heat checks” for over 400,000 hard-hit households. France is capping an increase on regulated electricity costs at 4 percent and is spending a total of 26 billion euros to help companies and households offset higher gas and power bills.
In Germany, where the war in Ukraine and inflation have also put significant pressure on consumer sentiment, Chancellor Olaf Scholz’s government has approved €4.5 billion in tax relief measures.
The war has also added to the strain on supply chains that were already stretched by the pandemic, continuing to press on producer prices and the cost of goods for consumers.
“The question is whether the worst is behind us now, and that seems doubtful,” Bert Colijn, a senior eurozone economist at ING Bank, wrote in a note to clients, adding that the prospect of double-digit inflation “cannot be ruled out at this point.”
Source: Economy - nytimes.com
