Inflation in eurozone soars to record 7.5%

Inflation in Europe has soared to another record, according to EU figures, in a fresh sign that rising energy prices fuelled by Russia’s war in Ukraine are squeezing consumers and adding pressure on the central bank to raise interest rates.

Consumer prices in the 19 countries that use the euro rose by an annual rate of 7.5% in March, according to the European Union statistics agency Eurostat.

The latest reading smashed the high set last month when it hit 5.9%.

It is the fifth straight month that inflation in the eurozone has set a record, taking it to the highest level since records for the euro began in 1997.

Rising consumer prices are a growing problem around the world, making it more difficult for people to afford everything from groceries to utility bills.

Spiking energy costs are the main factor driving inflation in Europe, with prices surging 44.7% last month, up from 32% in February, Eurostat said.

Oil and gas prices had already been rising because of increasing demand from economies recovering from the depths of the Covid-19 pandemic.

They jumped higher after Russia, a major oil and gas producer, invaded Ukraine, on fears that sanctions and export restrictions could disrupt supplies.

It is also getting more expensive to eat in Europe. Food costs, including alcohol and tobacco, rose 5%, compared with 4.2% the month before.

Prices also increased for goods like clothing, appliances, cars, computers and books, up 3.4% from 3.1% the month before, and for services, which were up 2.7% from 2.5%.

The latest figures make it more urgent for the European Central Bank to get off the sidelines and take action, analysts said.

The bank is balancing record inflation with the threat that the war may damage an economy under pressure. Last month, it sped up its exit from economic stimulus efforts to combat inflation, but has not taken more drastic steps.

“We think that the ECB will soon conclude that it can’t wait any longer before starting to raise interest rates,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics.

Other central banks have started raising rates, including in the US, where inflation has soared to a 40-year high of 7.9%. European countries that do not use the euro, including Britain, Norway and the Czech Republic have done the same.

Italian premier Mario Draghi, a former European Central Bank president, said: “Inflation is rising because raw materials prices are going up, in particular those for foodstuffs.

“Those are the ones that hit hardest a family’s buying power. Shortages in some raw materials creates a bottleneck in production and forces further price hikes.”

He said that as long as inflation remains temporary, governments can respond with budgetary measures, such as payments to help low-income families with higher heating and electricity costs, but if it becomes a longer-term issue, the response will have to be structural.

Italy’s construction industry has raised the alarm over how jobs at thousands of public and private construction sites are at risk from inflation.

It warned that the sector could not only slow down but come to a complete halt because of soaring costs for fuel and raw materials, including iron, reinforced concrete and steel, which has doubled in price.