Eurozone inflation surpasses 2% target in March, European Central Bank faces a dilemma

Sina Finance reported on March 31 that inflation in the Eurozone surged this month and exceeded the European Central Bank's target of 2%. The reason for this is the sharp rise in oil and gas prices, which exacerbates the dilemma of policy-making. The high energy costs are dragging down economic growth and there is also a risk of triggering an inflation spiral. Data released by the EU statistics office on Tuesday showed that the overall inflation rate in the Eurozone rose from 1.9% in the previous month to 2.5% in March, with energy costs increasing by 4.9%. If companies pass on the cost increase to prices and labor demands higher wages due to a decrease in real disposable income, rapid energy inflation can easily spread. ECB President Lagarde stated last week that if the central bank remains inactive, the public may start questioning its determination to fight inflation. This could strengthen the case for raising interest rates, even in cases where inflation shocks are significant but not long-lasting. Financial markets currently expect the ECB to raise interest rates three times this year, with the first hike possibly in April or June. While some officials, including Bundesbank President Weidmann, have suggested that an interest rate increase in April is an option, other members like Schnabel have warned against hasty actions.