The Euro zone experiences another record high inflation of 7.5% due to the rise in energy prices caused by the Russia-Ukraine war.

• The economic uncertainty in Russia has been renewed due to its invasion of Ukraine.
• Higher energy prices, a result of the war, are contributing to inflation throughout the EU.
• ECB President Christine Lagarde stated earlier this week that "three key factors are predicted to increase inflation in the future."

Last month, the cost of living reached a new record high in the euro zone, prompting concerns about how the European Central Bank can control the rapid increase in consumer prices.

Eurostat reported on Friday that headline inflation for March was 7.5% on an annual basis, up from 5.9% in February.

The possibility of a recession in the euro zone in 2022 has been raised by some economists due to the economic uncertainty caused by Russia's invasion of Ukraine. European officials have not yet confirmed this possibility.

Last week, Italy's Prime Minister Mario Draghi stated that the invasion of Ukraine would cause economic harm, but not a recession.

The euro zone has implemented unprecedented penalties against Russia for invading Ukraine, including the prohibition of luxury goods sales, which are having a negative impact on the euro zone economy.

The war has resulted in several side-effects, including higher energy prices, which are contributing to inflation throughout the EU.

ECB President Christine Lagarde stated earlier this week that "three key factors are predicted to increase inflation in the future."

Energy prices are predicted to remain elevated for an extended period, food inflation is anticipated to intensify, and global manufacturing constraints are expected to endure in specific industries.

The economic climate is causing households to become more pessimistic and potentially reduce their spending, according to Lagarde's speech in Cyprus on Wednesday.

Reducing expenses could exacerbate economic difficulties, as companies would sell less, have less money to compensate employees, and be less inclined to invest.

Higher interest rates

Capital Economics' senior Europe economist, Jack Allen-Reynolds, stated in a note to clients on Friday morning that the euro-zone inflation, which is expected to rise even further above the ECB's forecast, is likely to remain high for the rest of the year. As a result, he believes it won't be long before the Bank starts raising interest rates.

He stated that there are three planned rate hikes of 25 basis points each for the current year.

Berenberg analysts predict four rate hikes in 2022 and 2023, with the first occurring in the fourth quarter of 2022.

Salomon Fiedler, an economist at Berenberg, stated that while the ECB has more time to reduce its monetary stimulus than the U.S. Fed, the implementation of expensive green transition policies and expansionary fiscal policy may cause inflation to rise. Fiedler added that the ECB will eventually need to respond to this trend.