Energy-fueled inflation causes first euro rate hike in a decade

Soaring inflation caused by soaring energy prices prompted the European Central Bank to consider the first interest rate hike in the euro zone in 11 years.

“High inflation is a major challenge for all of us,” ECB President Christine Lagarde said after a meeting of the bank’s board of governors, as cited by Euronews.

The rate hike will be 0.25% and will take place in July. If inflationary pressures persist, the ECB will implement another 0.25% hike in September.

Eurozone inflation hit a record high last month, reaching 8.1%, amid persistently high oil and gas prices, the former significantly affected by European Union sanctions against the Russia and the second maintained at a high level by a tight supply,

In the gas sector, prices have fallen slightly lately as the summer started early, which has lowered demand, and there is still plenty of LNG to fill storage facilities. Yet prices remain much higher than they have been in the past, fueling higher prices throughout the supply chain.

Due to the massive rally in oil and gas, industrial price inflation in the Eurozone reached an annual rate of 37.2% in April, the latest Data from Eurostat showed last month. For the whole of the European Union, producer prices increased by 37% over the year.

Interestingly, energy inflation in the Industrial Producer Price Index compiled by Eurostat skyrocketed even before the start of the war in Ukraine. For December 2021, for example, monthly energy inflation stood at 7.2%. In January this year, industrial energy inflation rose 11.8% from December.

The outlook for energy prices remains gloomy with respect to inflation. Oil and gas are not expected to lose gains anytime soon as supply remains tight for both despite urgent U.S. efforts to boost LNG export capacity and OPEC+’s commitment to increase production of more than 200,000 b/d more than initially planned in July and August.

By Irina Slav for Oilprice.com

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