Surging energy costs have driven inflation in Europe to another record high, raising questions about when the central bank should step in to ease the pain to people’s wallets while Russia’s invasion of Ukraine rattles the global economy.
Consumer prices in the 19 countries that use the euro currency increased by an annual rate of 5.8% in February, the European Union statistics agency, Eurostat, reported Wednesday.
The inflation reading smashed the record of 5.1% set last month — the fourth straight month it has hit an all-time peak — to reach the highest level since recordkeeping for the euro started in 1997. In comparison, U.S. consumer prices rose 7.5% from a year earlier, the biggest jump in four decades.
The latest numbers underscore continuing pain for the continent’s consumers and pile more pressure on the European Central Bank as it grapples with a decision on when to raise interest rates to combat high prices.
Inflation in Europe, as in other major economies, has been fueled by surging energy prices, and the problem will be complicated by Russia’s war in Ukraine.
Russia, a major oil and gas producer, has been hit with sanctions and export restrictions that have raised worries that supplies could be cut off, pushing crude prices above $110 a barrel. Energy prices had already been rising before the war as supplies shrank because of increased demand from economies recovering from the depths of the COVID-19 pandemic.
Before the conflict erupted, the head of the European Central Bank had said record inflation could linger for “longer than expected” and appeared to open the door at least a crack for an interest rate increase this year. But that is now in question.
“For the European Central Bank, the war does mean a rethink of monetary policy,” Bert Colijn, senior eurozone economist at ING Bank, said in a report.
The main risk now facing policymakers is whether quicker tightening will hurt an economy already under pressure, he said.
“As the situation regarding Russia and Ukraine changes so rapidly at the moment and no one can predict what the actual economic impact will be, expect the ECB to refrain from big commitments around its policy for the coming year,” Colijn said.
Energy costs rose faster last month, up by 31.7% compared with 28.8% in January, Eurostat said. In contrast, other categories saw smaller but still notable gains. Food, alcohol and tobacco costs rose 4.1%; prices for goods like clothing, appliances, cars, computers and books rose 3%; and service prices rose 2.5%.