EUROZONE CONSUMER PRICE inflation soared to a new record high in January, according to official data released this morning.

Prices rose by 5.1% in the year to the end of January, a first since the European Union’s official statistics agency Eurostat began compiling data in 1997.

Irish consumer prices rose by 5% over the same period, according to the data.

Annual Eurozone inflation had already hit a two-decade high of 5% in December amid skyrocketing energy prices across the single currency area and Europe in general.

Today’s figures will add to the growing pressure on the European Central Bank (ECB) — which is in charge of monetary policy across the euro area — to raise interest rates in a bid to cool down rocket-fuelled demand.

But the flip side is that tightening monetary policy by raising rates could prematurely reduce economic activity, triggering a recession while European economies are still recovering from the after-effects of the pandemic.

The ECB targets annual price inflation of 2%.

Its Governing Council gathers tomorrow for its first monetary policy meeting of 2022 but observers expect the ECB to stick to its current rates, which are historically low in the wake of the coronavirus pandemic, despite the inflationary pressure.

The ECB is also in the process of winding down asset purchases conducted under its €1.85 trillion Pandemic Emergency Purchase Programme (PEPP), rolled out at the outset of the pandemic to prop up the Eurozone financial system.

“January’s inflation data support our view that the ECB will soon forecast inflation to be at its target over the medium term,” the firm Capital Economics said in response to the latest data.

“Accordingly, we think that policymakers will end net asset purchases completely this year and prepare to start raising interest rates in early 2023, if not sooner,” it said.

Anxiety

Energy accounted for 28.6% of the inflation surge seen in the eurozone in January, Eurostat said. But the impact of surging entry prices on headline inflation has grown since December when it represented 25.9% of the overall price jump.

Food, alcohol and tobacco accounted for 3.6%, also an increase over the previous month, while services jumped 2.4%.

Inflation for non-energy industrial goods rose 2.3% in January, lower than the 2.9% seen in December.

Inflation is becoming a point of increasing anxiety in the eurozone, as in other economies around the world facing supply constraints and sudden demand for energy as businesses try to jump back into pre-pandemic mode.

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Consequently, ECB President Christine Lagarde and her colleagues are under pressure to follow the path taken by other central banks in recent months.

Jay Powell, Lagarde’s opposite numbers in the US Federal Reserve, announced last week that it will “soon be appropriate” to hike rates in an attempt to put a dampener on demand in the US economy.

Markets expect a minimum of five Fed interest rate rises this year with the first expected in March.

The Bank of England, meanwhile, has already raised rates along with the Russian central bank, the Norwegian central bank and a handful of others. 

But Lagarde has repeatedly insisted that the Eurozone economy is in a completely different position to the US economy, having battled stubbornly low euro area inflation for the past decade or so.

— Additional reporting by AFP