ECB Cites Energy Price Hikes as Main Driver of Euro Zone Inflation

The European Central Bank (ECB) has found that energy price hikes are behind most of the euro zone's inflation spike since the start of the war in Iran.

A new research post by ECB economists Kristina Barauskaitė Griškevičienė and Claus Brand analyzed the current bout of high inflation against the 2021-22 spell, which was also marked by energy price shocks.

The study found that until the end of May this year, the increase in headline inflation has been driven almost entirely by adverse energy supply shocks, unlike the previous period where monetary stimulus came first and fiscal stimulus later on.

This difference in drivers supports the more measured policy response taken so far by the ECB, which is consistent with its medium-term orientation and financial market expectations.