Eurozone inflation reaches record high
4 Min Read
The eurozone has been taking hits left and right in light of the Ukraine war and the sanctions on Moscow, and the European Central Bank is under tremendous pressure to mitigate the crisis.
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People shop at a local market in Nantes in France, April 1, 2021 (Reuters)
Inflation in the eurozone soared to new heights in June, official data showed on Friday, in light of surging energy and food prices and a staggering European economy.
The European Union's Eurostat agency said rising consumer prices in the 19 countries that use the euro, i.e., the eurozone, reached 8.6% in June, an increase of half a percentile point from the previous record of 8.1% in May.
Consumer prices in the 19 countries have been setting records since November, driven by the hikes in energy prices that had increased by 41.9% year on year, mainly due to the sanctions on Russia over the Ukraine war.
Inflation was not exclusive to the energy market, as analysts have outlined the rising food prices, which have risen by 8.9%, as evidence that the crisis was spreading through all of the economy's sectors.
"Historically, we have never had such a high figure for the contribution of food. It will have a big impact," Ostrum Asset Management's Philippe Waechter pointed out.
The European Central Bank (ECB) stressed that it would do everything in its power to mitigate inflation and bring it back to its target level amid mounting political pressure on Brussels to drive energy and food prices lower.
Interest rates not high enough?
Russia has been showing an increase in willingness to cut off gas supplies to the eurozone, which raised concerns within the countries about energy stockpiles and drove several states to ration energy to get through the winter.
The Netherlands, like the entire of Europe, will not be able to pump enough gas into the storage facilities by winter without contingency measures, Dutch climate and energy minister Rob Jetten said on Monday.
"We see that the overall supply of gas from Russia to Europe is rapidly declining. This means that without additional measures, it is no longer possible to guarantee that we will be able to fill enough gas storage facilities in Europe and the Netherlands to prepare for the winter," Jetten said in a statement.
Some analysts were optimistic upon seeing core inflation data, which does not include energy and food prices, come in at 3.7%, constituting a meager drop from May data.
The drop will not be enough to drive the ECB from changing its course from what it had decided during its last meeting when policymakers agreed to the bank's first interest rate hikes in decades.
The 0.25% interest rate increase, set to take place during the ECB's upcoming meeting on July 21, will constitute the first hike for the historically low eurozone interest rates.
The ECB is under mounting pressure to mitigate inflation and embark on the path taken by the United States, where the Federal Reserve has warned that it may cause a recession just to set drive prices down.
Earlier this month, the European Union agreed to put an end to all Russian oil imports, despite Europe's heavy dependence on Russian energy.
US government data released on Thursday showed that price increases that had held steady in the past 12 months ended in May, while the rise in consumer spending slowed sharply.
This, according to some, may give solace to consumers as a sign that the Federal Reserve's aggressive interest rate plans are beginning to have an effect in limiting the fastest uptick in inflation seen in more than four decades.
Compared to May 2021, the Personal Consumption Expenditures (PCE) price index rose 6.3%, the same pace as in the prior month, despite it rising 0.6% compared to April, according to the Commerce Department.
Meanwhile, the Fed has been for the past few months aggressively hiking interest rates to try and lower rising prices, but its efforts did not materialize in May, with consumer prices hitting four-decade highs. Consumer prices in May rose 8.6% and soared over what economists thought was the peak in March.
