A jump in European inflation adds pressure on ECB to act

The eurozone started 2022 much as it ended the previous year, with record-setting inflation that defied expectations. Now economists are wondering if the persistently high prices could pressure the European Central Bank to change its position that the situation is temporary.

Inflation for January reached 5.1 percent in January, up slightly from the 5 percent rate in December, another record for the countries that use the euro since data collection began in 1999.

Unusually high energy prices, driven up by tensions between Russia and Ukraine, and continuing economic fallout from the coronavirus pandemic were cited as the main factors driving up prices.

Gasoline prices, in particular, have soared in recent weeks. In Germany, drivers are faced with the latest record price for a liter of gas, at 1.712 euros, the equivalent of $7.31 per gallon, the ADAC motor association said Wednesday. Diesel fuel, usually more affordable, also reached a high, increasing nearly 3 euro cents to 1.640 euros per liter, or $7 per gallon.

Months ago, many economists predicted that the numbers would begin falling back as the world’s industrial powers returned to work.

“It is a surprise compared to most people’s expectations,” Marchel Alexandrovich, an economist at Saltmarsh Economics, told Reuters. “And there is a concern that what we’ve seen in the U.S., in Britain, we are now seeing in the eurozone as well, and that is that inflation is proving stickier than expected.”

In the United States, inflation has been running above policymakers’ targets, while in Britain prices rose in December at their fastest rate in 30 years.

Economists expect the high prices will dominate discussion when European Central Bank policymakers meet Thursday. Observers will be looking for the bank’s president, Christine Lagarde, to signal whether she is backing off her previous conviction that the price surges that began taking hold across Europe late last year are temporary.

In December, the Bank of England became the first major bank to raise its interest rates in an effort to control the rising prices. The Federal Reserve has signaled that it plans to increase interest rates in March.

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