Inflation continued to rise in Europe’s biggest economies this month as growth took a hit, leaving households poorer as they foot the bill for soaring energy costs after Russia’s invasion of Ukraine.
The rise in prices hit multi-decade highs in Italy, France, Germany and Spain in March, intensifying a monetary policy dilemma for the European Central Bank, which must fight rising prices but also avoid stifling already sagging growth.
Inflation in Italy hit 7%, while prices in France rose 5.1%, boosted by rising fuel and natural gas, which typically affect poorer households more than others.
The data, along with sky-high readings from Germany and Spain the day before, suggest that eurozone inflation to be released on Friday will be well above 7%, beating expectations and well above target. 2% of the ECB.
While most of the increase is due to energy prices, Europe’s labor market is also the tightest in decades, suggesting that underlying price pressures are also starting to mount and that wages will follow sooner rather than later. .
Eurozone unemployment fell to a record low of 6.8% in February, separate data showed on Thursday, and a further drop is projected by the ECB.
“Given that rising inflation is almost exclusively supply-side driven, the higher the inflation, the weaker economic growth will be,” analysts at ABN Amro said in a note to clients.
“Indeed, economic growth is likely to disappoint the ECB’s projections,” they added. “The ECB will likely balance these forces by modestly tightening monetary policy.”
Source: CNN Brasil
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