Eurozone inflation rose to another record high as food and energy prices soared

A market in downtown Bonn, Germany on February 5, 2022.

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Prices in the Eurozone continued their upward march in May, reaching their highest level for the seventh consecutive month.

Inflation came in at 8.1% for the month, according to preliminary figures from the European Statistics Office on Tuesday, up from an April high of 7.4% and above expectations of 7.8%.

This comes after inflation data from several major European economies surprised to the upside in recent days. Preliminary figures on Monday showed German inflation (coordinated to be comparable to other EU countries) came in at an annualized rate of 8.7% in May, vastly exceeding analysts’ expectations of 8% and pointing to a sharp rise from 7.8% in April.

French inflation also beat expectations in May to hit a record 5.8%, up from 5.4% in April, while Spanish coordinated consumer prices jumped 8.5% annually in May, beating expectations of 8.1%.

Across the eurozone, the record rise in consumer prices was driven by higher energy costs, which came in at 39.2% (up from 37.5% in April) and a 7.5% increase in food, alcohol and tobacco prices (up from 6.3%).

But Eurostat added that even without energy and food prices, inflation rose from 3.5% to 3.8%.

Price hikes in recent months have been exacerbated by the war in Ukraine, especially food and energy costs, as exports have been banned and countries across the West race to reduce their dependence on Russian gas.

European Union leaders agreed late Monday to ban 90% of Russian crude oil by the end of the year, Send higher prices. Charles Michel, president of the European Council, said the move would immediately cover 75% of Russia’s oil imports.

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Inflation – which remains persistently high not only in Europe, but also in the UK, the US and beyond – is causing problems for central banks, which are also balancing the risks of a recession.

earlier this month, European Central Bank President Christine Lagarde said she expects a rate hike at the central bank’s July meeting.

“Based on current expectations, we will likely be in a position to exit negative rates by the end of the third quarter,” I wrote in a blog post. “If the eurozone economy is overheated as a result of a positive demand shock, it would make sense to sequentially raise interest rates above the neutral rate.”

The European Central Bank’s Governing Council is due to meet on June 9, and then on July 21.

Goldman Sachs’ chief European economist, Gary Steen, told CNBC on Tuesday that Wall Street expects a 25 basis point rise in the European Central Bank’s deposit rate at each of its next meetings over the next year, raising the rate from — 0.5% currently to 1.5% in June. 2023. Goldman Sachs expects core eurozone inflation to peak at 9% in September.

“But remember that a lot of this is driven by energy prices, a lot of it is driven by things related to global bottlenecks, and the core inflation numbers, if you exclude food and energy prices, come to about 3.5%. Wage growth is just over 2%,” Stehn said before the data was released on Tuesday. .

“So the core inflation pressures have certainly held in the euro area, which is why we think they will return to normal very quickly, but they are not operating at the same levels that we see in the US and UK, where inflation is around 6% and where central banks need – or The Fed in particular – to take a more decisive approach to tightening policy than the European Central Bank.”

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