Inflation took a significant jump in March. . In the Eurostat statistical series, we must go back to October 2022 to find a greater increase. As then, the ultimate cause of the price increase is a war and its effect on fuels: four years ago it was Russia’s invasion of Ukraine and natural gas prices that caused the price crisis; Today it is the war in the Middle East that has skyrocketed the prices of a barrel of oil.
Before knowing these numbers, the president of the European Central Bank, Christine Lagarde, had already warned that the institution she directs. In his last public speech, on March 25, he emphasized that the ECB’s governing council, where it is decided whether to raise or lower interest rates, “depends on the data.” And these are evidently adding a lot of pressure since when the CPI is above 2% – the inflation objective of the guardian of monetary policy – “even in a not too persistent way it could justify a moderate tightening” of its decisions, said the Frenchwoman, pointing to a possible increase in the official price of money in the euro zone.
But the ECB, like all institutions dedicated to economic policy, does not work with a single scenario. And if the most adverse one, the one that foresees inflation above 2% in a “significant and persistent” manner, became a reality, Lagarde pointed out that “the response must be forceful.
The risk, as already seen in 2022, is that the jump in fuel prices will pass to other products of a very different nature: food, beverages, services, electronic devices. Governments are reducing fuel taxes so that inflation through transport does not end up affecting the entire economy. If that happens, it is more difficult and takes longer to reduce the CPI again. Although this will depend, almost exclusively, on how long the war in the Middle East and the blockade in the Strait of Hormuz lasts.
