Itnflation in countries using the euro set another eye-watering record, pushed higher by a huge increase in energy costs fueled partly by Russia’s war in Ukraine.
Annual inflation in the eurozone’s 19 countries hit 8.6% in June, surging past the 8.1% recorded in May, according to the latest numbers published Friday by the European Union statistics agency, Eurostat. Since 1997, when records began for the euro were kept, inflation is at its highest point.
Prices for energy shot up 41.9% and food, alcohol, and tobacco prices rose 8.9% faster than in the preceding month.
Demand for energy has risen as the global economy bounced back from the depths of the COVID-19 pandemic and Russia’s invasion of Ukraine made things worse.
European Union leaders agreed to ban most Russian oil imports by the year’s end, driving a price spike. The 27-nation bloc wants to punish Moscow and reduce its reliance on Russian energy, but it’s also adding to financial pain for people and businesses as utility bills and prices at the pump soar.
Russia cut down on natural gas deliveries to the E.U. last month, which was used in power generation and industry. Germany, Italy, and Austria were also affected by the cut in gas supplies to France, Poland and Bulgaria.
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“Importantly, the oil embargo and gas supply squeeze that unfolded over the month of June have caused energy prices to soar,” ING Bank’s senior eurozone economist, Bert Colijn, wrote in a commentary.
Worldwide rising consumer prices have been a major problem. Inflation in America and Britain reached their 40-year highests, 8.6% and 9.1% respectively. This has prompted the U.S. Federal Reserve Bank of England, Bank of England, and other global central banks to agree to a range of interest rates increases in an effort to fight inflation.
Colijn said the eurozone’s latest “ugly inflation reading” adds pressure on the European Central Bank to act quickly.
This month will see the ECB’s first interest rate increase in over 11 years. A second hike is expected in September. Christine Lagarde, President of the Bank, said that while she prefers to take steps to reduce the impact on consumer prices to help the economy recover, it is open to larger rate increases if inflation rises beyond what was expected.
“I don’t think that we’re going to go back to that environment of low inflation,” Lagarde said at an ECB forum Wednesday in Sintra, Portugal. “I think that there are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are facing now that are going to change the picture and the landscape within which we operate.”
Central banks can cause a recession by increasing the cost of borrowing.
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Inflation in the euro area has been setting monthly records since last year, underscoring how the war’s impact on global energy supplies is making life more expensive for 343 million people.
Core inflation, which excludes volatile energy and food items, was much more stable. As expected, prices rose for products such as books, clothes, appliances and computers at 4.3%. Prices for services remained stable at 3.4%.
E.U. Data also revealed that countries bordering Russia, who have tried to get off of cheap Russian gas, are now paying the price for rising prices. The annual inflation was 22% in Estonia, 20% for Lithuania, and 19% in Latvia.
Poland is not a member of the E.U. but does use it. The member reported that the inflation rate rose to 15.6% last June from a year prior, which is the highest level in nearly a quarter century. It was a rise from 13.9% annual rate in May.
Analysts pointed out that gasoline and diesel prices in Poland rose 46.7% compared to a year earlier. The increase in food prices was 14.1%
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