Eurozone inflation rises to new record high in April

Eurozone inflation rose to a new record high at 7.5% in April from 7.4% in March, in line with expectations.

Surging energy and food prices were the main contributors to further rise in consumer prices, with high readings causing a further headache to the European Central Bank as policymakers are already concerned that strong inflationary pressures is becoming increasingly broad-based.

The core inflation which excludes volatile components, such as energy, food, tobacco and alcohol, rose to 3.5% in April from 2.9% previous month and overshot expectations for 3.2% rise, suggesting that underlying inflation remains high and tends to rise further.

After a year of fighting a lethargic inflation, the EU policymakers face new problem with unleashed price pressures which conflicts with the ECB’s decision to keep ultra-low interest rates and continues to pump the money into the economy, on growing concerns about the impact of the war in Ukraine that would further dent the confidence and risk further slowdown in the economic growth.

The ECB signaled it will end bond purchases, likely in July and will start hiking interest rates in the third quarter, with another raise expected towards the end of the year.

Economists expect 3-4 hikes this year that would bring the interest rate back to positive territory for the first time in eight years, however the central bank faces threats of losing confidence in their ability to control prices, as the inflation is currently near four times above central bank’s 2% target.