Ukraine war pushes eurozone's inflation to a record 7.5%
Russia's invasion of Ukraine has thrust the eurozone into a new economic reality where high inflation is no longer a temporary headache and seriously threatens to undo the gains of the post-pandemic recovery.
Inflation in March reached 7.5% on an annual basis, an all-time high for the eurozone.
The figure represents a stunning rise compared to one year ago when inflation was 1.3%, well below the 2% target of the European Central Bank.
The March data is the first reading from Eurostat that takes into account the consequences of the Ukraine war, which has now entered its second month with no resolution in sight.
Annual inflation – the rate at which prices for goods and services change over time – has been steadily rising since late summer, when a mismatch between supply and demand sent gas prices soaring.
The trend persisted throughout winter when low temperatures pushed electricity consumption and considerably worsened after President Vladimir Putin gave orders to invade Ukraine.
The conflict plunged the global economy, still reeling from the pandemic, into uncertainty and turmoil. A broad range of Western sanctions has upended trade with Russia, the EU's main energy provider.
The bloc gets over 40% of its gas from Moscow, mainly through pipelines. Even if gas has so far been exempted from sanctions, the war has intensified price volatility across the continent.
The Dutch Title Transfer Facility, Europe's leading benchmark, shows that prices remain stubbornly above the €100 megawatt-per-hour mark, compared to less than €20 in early 2021.
March's inflation reading reflects this new normal: the energy sector has had an impressive surge of 44.7% – driving the entire eurozone on an upward trajectory.
Food, alcohol and tobacco increased
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