Energy-Fueled Inflation Prompts First Euro Rate Hike In Decade

Booming inflation caused by runaway energy prices has prompted the European Central Bank to consider the first interest rate hike in the eurozone in 11 years.

"High inflation is a major challenge for all of us," the president of the ECB, Christine Lagarde, said after a meeting of the bank's governing council, as quoted by Euronews.

The rate hike will be 0.25 percent, to be effected in July. If inflationary pressures persist, the ECB will implement another 0.25-percent hike in September.

Eurozone inflation hit an all-time high last month, reaching 8.1 percent, amid consistently high oil and gas prices, the former significantly affected by European Union sanctions against Russia and the latter kept high by tight supply,

In gas, prices have declined some lately as summer began early, pushing demand down, and there is still plenty of LNG to fill up storage facilities. Yet prices still remain much higher than they have been in the past, fueling higher prices along the supply chain.

Because of the massive rally in oil and gas, industrial price inflation in the eurozone hit an annual 37.2 percent in April, the latest data from Eurostat showed last month. For the whole European Union, production prices rose by 37 percent on the year.

It's interesting to note that energy inflation in the industrial producer price index compiled by Eurostat has been soaring even before the start of the war in Ukraine. For December 2021, for example, monthly energy inflation stood at 7.2 percent. In January this year, industrial energy inflation was up 11.8 percent from December.

The outlook for energy prices remains grim with respect to inflation. Oil and gas are not expected to lose any gains soon as supply remains tight for both despite the United States' urgent efforts to expand LNG export capacity and OPEC+'s pledge to boost production by over 200,000 bpd more than originally agreed in July and August.

By Irina Slav for Oilprice.com

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