BRUSSELS, (Reuters) – Euro zone inflation reached a new record in May. This challenges the view of European Central Bank that steady interest rate rises starting July are sufficient to control stubbornly high prices.

As price growth increased, inflation in the 19 Euro-countries accelerated to 8.1%, up from 7.4% April. That beats expectations for 7.7%.

Over the last year prices have increased sharply in Europe, first due to supply chain issues after the pandemic and then Russia’s war against Ukraine. This suggests that there is a new era for rapid price growth, which could end a decade of low inflation.

While headline inflation now stands at 4 times the ECB’s 2% target for inflation, ECB policymakers might be more concerned about the rapid increase in underlying prices. This indicates that what was previously seen as a temporary rise in prices is now becoming ingrained.

Watched closely by the ECB. Inflation excluding food & energy prices accelerated at 4.4% ear on year from 3.9%. A narrower measure which also includes alcohol & tobacco accelerated to 3.8% yearly from 3.5% in April.

In an effort to curb inflation, ECB President Christine Lagarde (CEO) and Chief Economist Philip Lane already announced 25 basis points increases in the ECB’s minus 0.5% Deposit Rate in July and September.

However, economists and policymakers aren’t convinced that this is enough given the fact that underlying inflation shows no sign of slowing down.

Problem is, once energy prices rise, inflation expands and becomes entrenched. Eventually, this will lead to a price-wage spiral.

The evidence isn’t clear but a series of data, from spikes in negotiated wage to a broadening of core inflation, shows that there are growing risks.

This is why central bank governors from Latvia, Netherlands, and Austria have said in unison that an Austrian 50-basis point rate rise should be considered for July.

Klaas Knot (the Dutch central bank’s head) even suggested that inflation expectations now lie at the top end of what can still be considered anchored. This indicates that investors and households could begin to question the ECB’s ability to control price growth.

On June 9, the ECB will meet again to end the bond purchase scheme it initiated at the end June. It will also continue signaling rate increases.