Prices in the euro area are rising significantly. The increase in energy prices is particularly pronounced.
(Photo: dpa)
Dusseldorf/Frankfurt The inflation rate in the euro area continued to rise in March. Consumer prices increased by 7.5 percent compared to the same month last year, as the European statistical office Eurostat announced on Friday based on an initial estimate. This is the highest level since the introduction of the euro. Experts surveyed by Reuters had only expected a value of 6.6 percent. In February, the inflation rate was 5.9 percent.
For Germany, the Federal Statistical Office had already reported an inflation rate of 7.3 percent for March. However, the calculation method for Germany differs from that at European level.
Inflation was already higher than expected at the beginning of the year. It is currently being fueled further by the consequences of the war in Ukraine and the associated sanctions. Russia is not only an important exporter of oil and gas to Europe, but also of wheat and other raw materials that are needed for fertilizers or catalysts, for example. Prices there have recently risen significantly.
The high price pressure puts the European Central Bank (ECB) in a difficult position. Inflation is well above its medium-term target of two percent for the currency area.
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Bundesbank President Joachim Nagel sees the figures as a signal for tighter monetary policy. “The inflation rate is again significantly higher than expected,” he said. “We have clearly said in the Governing Council: The monetary policy measures depend on the data available.” From his point of view, the inflation data speak a clear language. “Monetary policy must not miss the opportunity to take countermeasures in good time.”
No rapid decline expected
Commerzbank economist Christoph Weil assumes that inflation will fall much more slowly over the course of the year than expected by the ECB. “The inflation rate should not fall below seven percent again until the middle of the year.” The chief economist at KfW, Fritzi Köhler-Geib, also expects prices to “solidify at a high level” in the short term.
Energy prices rose 44.7 percent year-on-year in March, after rising 32.0 percent in February. Unprocessed foods rose 7.8 percent. The core rate adjusted for energy, tobacco and food prices, which are particularly susceptible to fluctuations, was 3.0 percent.
The ECB has so far assumed that inflation will fall significantly again from next year and will drop to an average of 2.1 percent in 2023. However, ECB President Christine Lagarde recently conceded that it was unlikely to return to the same inflation dynamics that existed before the pandemic.
At its March meeting, the central bank decided to tighten monetary policy somewhat more quickly by ending its bond purchases earlier. This is a prerequisite for an interest rate hike. Whether the central bank will raise interest rates this year remains to be seen.
From the point of view of many experts, a decisive point is the question of whether the sharply rising prices will also affect wages. So far there is little evidence of this. But that could change soon.
“The trade unions will demand at least partial compensation for the higher inflation in the coming wage negotiations,” expects Commerzbank expert Weil. He therefore assumes that wage growth should therefore increase significantly. “Then at the latest, the ECB will have to reverse its ultra-expansive monetary policy.”
More: ECB boss Lagarde sees permanently changed inflation dynamics