Annual consumer price inflation in Ireland increased to 6.9% through March from 5.7% in February, according to flash estimates from Eurostat.
Similar increases have been measured across Europe. The latest CPI annual inflation rates estimates from Eurostat are Lithania (15.6%), Estonia (14.8%), Netherlands (11.9%), Latvia (11.2%), Spain (9.8%), Slovakia (9.5%), Belgium (9.3%), Greece (8.0%), Germany (7.6%) Italy (7.0%) Austria (6.7%) and France (5.1%).
Despite the escalating cost of living crisis, the European Central Bank continues to insist that it has no intention of hiking interest rates in the short term in order to rein in inflation.
In a speech on March 30, ECB president Christine Lagarde acknowledged that three main factors are likely to take inflation higher.
First, energy prices are expected to stay higher for longer, with gas prices up by 52% since the start of the year and oil prices up by 64%.
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Second, the pressure on food inflation is likely to increase. Russia and Ukraine account for nearly 30% of global wheat exports, while Belarus and Russia produce around a third of the world’s potash, a key ingredient in producing fertiliser, thereby exacerbating supply shortages.
Third, global manufacturing bottlenecks are likely to persist in certain sectors. For example, Russia is the world’s top exporter of palladium, which is key for producing catalytic converters. Ukraine supplies around 70% of the world’s neon gas, which is critical for semiconductor manufacturing.
“The best way that monetary policy can navigate this uncertainty is to emphasise the principles of optionality, gradualism and flexibility,” Lagarde added.
“Optionality means that we are prepared to react to a range of scenarios, and the course we take will depend on the incoming data.
“Any adjustments to the key ECB interest rates will take place some time after the end of our net purchases under the asset purchase programme and will be gradual.”
The ECB has signalled that the APP will not be terminated until the autumn.
Laagarde warned: “Europe is entering a difficult phase. We will face, in the short term, higher inflation and slower growth. There is considerable uncertainty about how large these effects will be and how long they will last for. The longer the war lasts, the greater the costs are likely to be.”
