FRANKFURT, Aug 31 Reuters Euro zone inflation jumped to another record high and will soon hit doubledigit territory, heralding a string of big interest rate hikes even as a painful recession appears increasingly certain.
Driven by expensive gas and a devastating drought, consumer prices jumped more than expected in August and further rises are already in the pipeline, suggesting more pain for households and businesses as they burn through their cash reserves.
This coincidence of high prices and low growth, often referred to as stagflation, leaves the European Central Bank with only painful choices that will increase the pain for the euro zone39;s 340 million people.
Stimulus for the bloc will only fuel more inflation and ultimately damage the bank39;s credibility, threatening the very foundations of its inflationfighting mandate.
But policy tightening will slow growth even further, exacerbating a downturn now all but certain from the start of the heating season.
Ultimately policymakers will choose the fight against inflation and rates are likely to rise at every remaining meeting this year, pushing up borrowing costs for governments, firms and households, even as finances are already becoming tighter.
Wednesday39;s inflation figures will even strengthen the case for an exceptionally large, 75basispoint ECB rate hike next week and policy doves will have to fight an uphill battle to downgrade the move to a still large 50 bps.
Inflation in the 19 countries sharing the…