Euro area inflation soars in March

In March the harmonised index of consumer prices (HICP) for the euro area increased sharply, by 7.5% year on year, compared with 5.8% in February. Inflation is being driven primarily by soaring energy prices across Europe, with industrial goods prices rising by 14.5% year on year, according to seasonally adjusted data from the European Central Bank (ECB). However, core inflation, which excludes energy and unprocessed food, also reached an all-time high in March, at 3.2%, equivalent to a 1.1% month-on-month increase.

As the war in Ukraine continues and the EU discusses further sanctions on Russia, energy prices will remain high, creating knock-on price effects across all consumer goods and services. As the March data indicate, member states in eastern Europe are most exposed to these disruptions. However, some west European states, such as the Netherlands, also experienced a sharp acceleration in price growth.

Governments across the euro zone have implemented measures to combat the surge in energy prices, mainly by extending direct subsidies to low-income households, as well as cutting energy taxes and pressuring domestic energy companies to lower bills. However, these measures have provided only marginal relief from higher prices, and inflationary pressures will continue to squeeze disposable incomes. In our next forecasting round we will revise up our average inflation forecast for the euro area of 3.6% in 2022.