Catarina demony, Rene Wagner

LISBON/BERLIN – Europeans already face rising living costs. Now, they are facing a deeper impact on their lives as the conflict in Ukraine raises fuel prices and threatens an fragile economic recovery.

In Europe, the surging gasoline price has caused the largest ever weekly rise in gasoline prices at service stations. Some are now charging more than 2 euro per litre (8.25/gallon) for unleaded fuel.

The problem isn’t the price of gasoline tomorrow; it’s how much it (gasoline), will cost in 15 days. We think it will likely cost more. Alejandro Oterino, a Madrid pensioner aged 76, said that he believes bad times lie ahead.

At its Thursday meeting, the European Central Bank needs to allay fears of price spiraling out of control. Christine Lagarde, chief of the ECB will try to show it is capable of controlling inflation in euro area that has already risen to a much higher level than anticipated at 5.8% before Russia invades Ukraine.

Gunther Schlnabl, an economist at Leipzig University said: “There’s a natural pressure for central banks to keep inflation expectations low via communication. However they may lose credibility.”

Portugal, the western Europe’s most impoverished country (with 10% of its population living below the minimum wage of 705 euro), motorists rush to top up their cars before new price increases. To fill up your diesel car, a 50-litre tank will cost you 91 euro.

Antonio Dias, 56 years old driver of Uber (NYSE:), in Lisbon said that if prices continue to rise then he might need to turn to social services for food and drinks.

“If it continues, it won’t make sense to continue doing such work,” he stated. He urged the government to reduce fuel taxes that currently account for about half of gasoline prices.

Already there are knock-on consequences. Teresa Soares is a food product seller in Portugal.

Soares (53), said that if this were my car I would likely put it away and not drive.

German motoring group ADAC stated that diesel prices rose by 28% over six days starting March 1. The heating oil price is also increasing as more homeowners increase their purchases. This oil, which many Germans still use to heat their homes, has been rising since March 1.

Many users are filling up their tanks because they fear that supply will be limited by the conflict between Russia and Ukraine. ()Tanks while we are still living in winter,” the statement said.

“STAGFLATION SPECTRE”

At the moment, there have not been any dramatic increases in food prices. With Russia and Ukraine being major suppliers of fertilizers and exporters of grain respectively, there is concern that the war will lead to increased inflation.

After observing “atypical consumer behavior”, some Spanish supermarkets, including the market leader Mercadona, have restricted sales of sunflower oil.

Spain’s Agriculture Ministry encouraged calm and declared that there was no shortage for the time being.

This is a concern because it will make consumer spending more difficult, particularly for low-income households that suffered the most during pandemic lockdowns when they didn’t receive furloughs and faced other losses to their income.

The Resolution Foundation in Britain estimated that the conflict would cause wider inflation and slash 4% from the average household income over the next year. This is the largest fall in almost half a century.

The Economy Ministry of Italy stated Monday in a report that the “surge in energy prices” and “corresponding rise in inflation are a significant risk to citizens’ economic well-being.”

All of this raises the possibility of “stagflation”, a combination of economic slowdown and inflation that was common in the 1970s. This condition is so hard to treat by central banks or governments.

The conflict has prompted ECB policymakers to debate whether they should halt efforts to reduce the extraordinary amount of stimulus that was used over the last decade to support the euro economy. This period saw the eurozone slowly emerge from a worldwide recession, only to be swept away by a new pandemic.

Schnabl from the University of Leipzig stated that, with the government now having to inject more money into the economy in order to aid the most vulnerable sectors of the population, it was essential for banks to continue their tightening policy.

According to him, “The most important consequence of central bank-financed public expenditure is stopped,” That will not work without a very gradual but decisive tightening of the monetary policy.