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The ECB Has Been Driving EU Inflation

The European Central Bank denies that it bears any responsibility for the eurozone’s current inflation struggles, pointing the finger at COVID-19 and Vladimir Putin. But there is good reason to believe that the ECB contributed significantly to rising prices, including for energy.

MUNICH – Inflation is galloping in the eurozone, as the euro tumbles. In August 2022 annual eurozone inflation reached 9.1%, and rates exceeding 20% are now being registered in the Baltic countries. In May 2021, a euro would have cost you more than $1.20; on September 27, you could buy one for $0.96. Is the European Central Bank to blame?

Loss of confidence in the euro jeopardizes the monetary union’s stability, because it can fuel an inflationary spiral and lead to capital flight. The United Kingdom is currently grappling with these dynamics, and the eurozone could well be next.

Recent inflation news from the eurozone’s largest member, Germany, is particularly alarming. In August, producer prices – which measure what is happening at the preliminary stages of industrial production – were a whopping 46% higher than in the same month last year. Given the long-term correlation between the growth rate of producer and consumer prices, this suggests that the latter could soar to 14% in November. Price stability – which is supposed to be the ECB’s uncompromising goal, per the Maastricht Treaty – is no longer perceptible.

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