Inflation in 19 Countries Using Euro Hit another Record

Inflation caused due to shooting oil and gas prices hit record in Europe for the third straight month, causing disturbance to the consumers and posing various questions regarding the future actions of the European Central Bank. 


In January, the 19 countries that use Euro currency witnessed a consumer price increase by an annual 5.1%, reported the European Union statistics agency Eurostat on Wednesday. The figures revealed surpassed the record of December and November, which was 5% and 4.9% respectively, and was the highest ever since the recordkeeping began in 1997. 


The skyrocketing energy prices have played a significant role, rising to 28.6%. The cost of oil has surged as the global economy is gradually gaining momentum after the pandemic restrictions have been lifted. On the other hand, the price of natural gas has increased in Europe due to depleted winter reserves, fewer supplies from Russia, and apprehensions regarding military moves by Moscow against Ukraine. 


The surged energy bills have become a political matter in Europe since governments have launched tax breaks and subsidies to cushion the fierce storm to the household budgets. However, the most significant factor responsible for holding Europe’s fiscal recovery is the higher inflation, making every item unaffordable or very expensive for a middle-class household. 


For instance, Germany’s gasoline prices have touched a record of 1.712 euros per liter, as revealed by Germany’s ADAC monitoring association on Wednesday. It is equal to USD 7.31 per gallon. 


Since the last three months of 2021, there has been a sluggish growth of 0.3% in the Eurozone. Firstly, it hit the zone due to the Coronavirus, and secondly, due to the spread of the Omicron variant, which resulted in various limitations and prevented several in-person activities such as; dining out. 


The recent burst of high inflation has put Thursday’s European Central Bank policy meeting. The bank president, Christine Lagarde, said that much of the inflation is dependent on the current factors, which should fade in the coming time. She noted that it was “very unlikely” that the bank would increase this year’s interest rate. 


Andrew Kenningham, the Chief Europe Economist at Capital Economics, said, “That would prepare the ground for the bank to raise rates, with the first hike in early 2023, though an increase at the end of this year is certainly possible.”


The European Central Bank’s stand is a total contrast to the U.S Federal Reserve, which has dropped hints that it could increase the rate of interest by March.

The analysts believe that inflation will decrease this year and reach about 1.8% in 2023 and 2024. 


It highlights the factors that resulted in the temporary inflation, which includes the restriction on transport of raw materials, which affect the supply of the goods and surge the cost and comparisons to meager energy prices during the most severe impact of the pandemic. Unfortunately, these comparisons are likely to drop out of inflation statistics by the coming time.