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European Central Bank in Frankfurt am Main: Economists are calling for an interest rate hike in July
Photo: Reiner Zensen/ imago images/Reiner Zensen
Inflation in the euro zone has risen to a new record high.
Driven by the high energy costs, the rate of inflation climbed to 7.5 percent in April, according to an initial estimate from the statistics office Eurostat.
Inflation had already reached a high of 7.4 percent in March and was still 5.9 percent in February.
According to economists, it remains uncertain whether the April value will be the provisional high.
The main drivers of inflation in April were the sharp rise in energy prices as a result of the Ukraine war.
On an annual basis, they increase by 38 percent, in March it was even 44.4 percent.
Unprocessed food prices increased by 9.2 percent and services by 3.3 percent.
However, the economy in the euro area is also being adversely affected by ongoing supply chain problems in the wake of the corona crisis - in particular by lockdown measures in China.
In addition, high inflation weighs on the economy, which in turn worsens consumer spending.
With the outbreak of the Ukraine war, the inflationary pressure intensified and became broader, said chief economist Thomas Gitzel from VP Bank: “Measured against this, an interest rate hike in July is a must.
Let us hope that the monetary watchdogs will fulfill this duty.«
The financial markets are already expecting three to four interest rate hikes this year.
The key interest rate is currently 0.0 percent.
At the same time, banks have to pay penalty interest if they hoard excess funds at the central bank.
This so-called deposit rate is currently minus 0.5 percent.
Should the European Central Bank (ECB) actually introduce rate hikes, the deposit rate could return to positive territory this year for the first time since 2014.
That would put an end to the penalty interest period.
Despite all the concerns about inflation, the economy remained in the growth zone at the beginning of the year.
Between January and March, gross domestic product (GDP) in the euro zone increased by 0.2 percent compared to the previous quarter.
ani/Reuters
