EU inflation pushed by Ukraine crisis set to persist

(Xinhua) 08:49, May 13, 2022

ROME, May 12 (Xinhua) -- The economies of Europe are facing an increased risk of stagnation caused by the impact of the ongoing conflict between Russia and Ukraine, analysts have said.

Recent figures published by the European Commission showed that eurozone economy -- which comprises 19 member states of the European Union (EU) -- grew by a modest average of 0.2 percent in the first quarter of this year.

But with prices surging due to higher energy and food costs -- the Commission said that the eurozone annual inflation was a record high 7.5 percent in April -- the net result was an erosion in Europeans' purchasing power.

Energy prices are the main culprit, analysts said, noting that the rising fuel costs have an impact on transportation and manufacturing across Europe.

"Sometimes inflation can be a sign of high consumer demand, but in this case prices are being pushed higher by rising costs for energy," Alessandro Polli, a professor of statistical economics at Rome's Sapienza University, told Xinhua.

"This is going to last a while. I think we can expect 5 or 6 percent inflation going forward. We haven't seen anything like this since the late 1970s," Polli said.

According to Fabio Panetta, a member of the European Central Bank's (ECB) Executive Board, the impacts of higher prices are already being felt in significant ways -- not just in the slowing economic growth but also in the emerging risk of "economic stagnation" even after last year's relatively robust post-pandemic recovery.

In an interview granted last week to La Stampa, a leading Italian newspaper, Panetta said that economic growth in the eurozone had all but stalled and that the situation could get worse before it gets better.

"This makes the options facing the European Central Bank more complicated, since monetary tightening that is aimed at limiting inflation would end up hampering economic growth that is already weakening," Panetta was quoted as saying, adding that the continent's economy is already "de facto stagnating."

The members of the ECB board are scheduled to meet in June to consider potential interest rate hikes.

Though the recent economic impacts were sparked by Russia's military operation in Ukraine that started on Feb. 24, analysts noted that prices in Europe had already been on the rise before that date.

Polli said that even an early end to the conflict could not restore the pre-crisis world.

"The relationship between Russia and the European states has been damaged by recent events," Polli said.

Countries highly dependent on Russian gas imports like Italy and Germany are looking for alternatives and that will continue, he said.

"That process will take time, and while it is taking place the transition will add to costs, push prices higher, and act as a drag on economic growth."

(Web editor: Peng Yukai, Liang Jun)


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