Euro zone inflation hits yet another record high as food and energy prices soar
On February 5, 2022, a market was held in Bonn city center.
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In May prices in the Euro zone continued rising, reaching a seven-month high.
According to preliminary data from Europe’s statistical office Tuesday, inflation was 8.1% in the month. This is higher than April’s record of 7.4%, and more than expected 7.8%.
This comes just days after several inflation figures from major European countries surprised the upside. German inflation (harmonized to be comparable with other EU nations) came in at an annual 8.7% in May, preliminary figures showed on Monday — significantly outstripping analyst expectations of 8% and marking a sharp incline from the 7.8% seen in April.
French inflation rose to an all-time high of 5.8% in May. That’s up from 5.4% April. Meanwhile, the annual rise in harmonized Spanish consumer price increased by 8.5% in May. This is higher than 8.1%.
The war in Ukraine has led to rising prices, especially for food and energy, and countries around the West are scrambling to cut their dependence on Russian gas.
The EU leaders agreed Monday night to stop Russian crude oil from being exported by the close of the year. sending prices higher. Charles Michel (president of the European Council) stated that 75% of Russian oil imports would be affected by the new move.
Inflation — which remains persistently high not just in Europe, but also in the U.K., U.S. and beyond — is causing a headaches for central banks, which are also balancing the risk of recession.
This month was earlier. European Central BankChristine Lagarde, President of the Bank of Canada said that she expected a rate increase at July’s central bank meeting.
Based on our current outlook, it is likely that we will be able to eliminate negative interest rates before the end of third quarter.” she wrote in a blog post. It would be sensible for the policy rate to rise sequentially over the neutral rate if the euro-area economy was experiencing an increase in demand.
The ECB’s governing body is scheduled to meet June 9 and 21.
Jari Stehn, the Chief European Economist at Goldman Sachs, told CNBC Tuesday that Wall Street expects 25 basis points increases to the ECB’s deposit rate during each of its upcoming meetings in the coming year. This will take the rate from -0.5% to 1.5% by June 2023. Goldman predicts the Euro area’s headline inflation will reach 9% by September.
Remember that energy prices are a major driver of inflation, as well as global bottlenecks. Core inflation numbers, which exclude food and energy, average 3.5%. Stehn stated that wage growth has been a little above 2%.
“So the underlying inflation pressures in the euro area have certainly firmed, which is why we do think they will normalize pretty rapidly, but they are not running at the same kind of levels that we are seeing in the U.S. and the U.K., where core inflation is running at about 6% and where the central banks — or the Fed in particular — needs to take a more decisive approach to tightening policy than the ECB.”