Eurozone in crisis as inflation rips through Europe – Much higher for longer

Boris Johnson discusses EU's 'addiction' to Russian oil and gas

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At the moment, inflation rates in the Eurozone have spiked at 5.1 percent in January. The ECB head, Philip Lane, said that energy prices and supply shortages, a result of the crisis and high volatility, drive the high inflation rates. In an interview with Frankfurter Allgemeine Zeitung, he said: “Inflation rates are indeed higher than expected, and they will last longer than originally thought.”

Commenting on the inflation crisis, Mr Lane acknowledged that utility bills and petrol are getting more expensive, while supermarket prices are also going up.

He noted: “We are aware that this price increase hits people with lower incomes much harder and that the impact of the energy shock on people is very different.”

As explained by the expert, the “enormous” increase in oil and gas prices is a result of a “pandemic cycle” that the oil price has gone through.

He said: “In the first pandemic year of 2020, energy prices had fallen unusually low.

“In the second half of 2021, there was a sharp rise in prices.

“There were many different supply shortages, but these will eventually dissipate.”

The Chief Economist claimed that the ECB doesn’t have to take a position on where energy prices are heading.

He said, however, that they “have to be agile and react to developments.”

Mr Lane also noted that inflation rates could see a hike because of climate change policies.

He said: “The effect on inflation will of course depend on how this process of green transformation goes. It will be a gradual process.

“A lot also depends on what the states do with the revenues from a carbon price. Recycling tax revenues can stimulate the economy.

“At the moment, however, it is mainly global factors that are driving up energy prices, rather than, for example, the national CO2 tax in Germany.”

Asked about a possible normalisation of monetary policy in Europe, the ECB head said: “In a time of high volatility and much uncertainty, one should not make absolute statements.”

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He predicted, however, that inflation rates could fall after a year: “Many factors that are driving inflation rates now will play a lesser role in 12 or 18 months.

“We believe that most of the current inflation will subside.”

Mr Lane noted that “the longer the origin of the shock persists, the more the overall price level will be affected.”

Therefore, the ECB is “revising (their) assessment of the durability of inflation in this respect.”

Additional reporting by Monika Pallenberg

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