Impact of EU electricity price rise on inflation temporary

Finance Ministers of the eurozone agreed that the increase in electricity prices in European Union (EU) countries and its effect on inflation was temporary but monitoring was "essential," European Commissioner for Economy Paolo Gentiloni said on Monday, reported Xinhua.

Addressing a press conference following an Eurogroup meeting in Luxembourg, Gentiloni said that this inflation increase is likely to drop in 2022.

He said the surge of wholesale electricity prices was a combination of factors, with the most important one being the global high demand for gas and the insufficient supply. To a lesser extent, electricity prices increased due to seasonal and one-off factors including weather condition and infrastructure upgrades which had been delayed due to the pandemic.

He highlighted that coordination between member states is "key in response to this crisis" with the commission working on a toolbox of policy measures that can be deployed to mitigate the impact. These measures should be temporary and targeted and must be consistent with the transition to a decarbonised economy.

The commissioner pointed out that while some governments have already announced measures to offset the increase in the population's electricity bills, he insisted that "Europe's Green Deal is not the problem."

Paschal Donohoe, who chaired the talks of the ministers, told the news conference that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy.

He said the eurozone economy continued to "bounce back strongly," insisting that the economic recovery remained on track.

"The growth that we are now seeing, the continued policy support we have in place and the recovery funding that is now flowing is indeed the best medicine there is to help firms and households recover from this economic crisis," he said.