Eurozone inflation hit its highest annual level in May since the euro was created in 1999, as energy and food prices hit record highs, Eurostat reported on Tuesday. Russia’s war in Ukraine Continued to bounce back in the continent’s economies, raising the specter of a recession.
Annual inflation in the 19 countries that use the euro jumped to a record 8.1% in May from 7.4% in April. Prices have risen for 10 straight months with few signs of slowing, exacerbating a cost-of-living crisis for consumers and forcing European policymakers to pledge various measures to ease the pain.inside U.S.April data showed that consumer price inflation had reached 8.3%, a slight slowdown from previous months.
The European Commission recently downgraded its growth forecast for this year to 2.7% from 4% in the winter. Meanwhile, the European Commission has forecast inflation is hitting a record level and is expected to average 6.8% for the year, leading a growing number of economists to warn that Europe could slip into a sharp slowdown or outright recession by the end of the year.
As inflation climbed, the ECB accelerated its policy response and said the era of negative interest rates could end as early as September.
Energy costs remained the biggest factor driving up consumer and business prices, rising 39.2% year-over-year in May to a record high, while processed food, alcohol and tobacco prices rose 7%.
European leaders reach a political agreement An embargo on most Russian oil imports in the early hours of Tuesday was a once-unthinkable measure aimed at punishing Russia but economists said it would also push up prices further, further hurting European households and industry.
Germany, Europe’s largest economy, hardest hit, inflation rises 8.7%. Consumer prices have also climbed for months in France (5.8%), Spain (8.5%) and Italy (7.3%), prompting lawmakers in those countries to cap energy prices or offer rebates to low-income households Offset gas costs and diesel.
In Germany, for example, starting in June, the government will reduce gas prices at gas stations and offer a $10 monthly national public transport ticket.
Rising energy costs have by far had the biggest impact on countries closest to the Russian border. Inflation in Estonia, for example, which was once free of Russian gas but is now subject to market volatility as energy prices fluctuate, is growing at a staggering 20.1% a year, almost double the 11% recorded in January. In Lithuania, the annual inflation rate rose to 18.5%, and in Latvia, it reached 16.4%.
Over the past year, some ECB policymakers have been reluctant to act as inflation has started to rise, while wage growth has been subdued across the region. But the bank is accelerating what it calls policy normalization as consumer prices continue to climb and spread to more goods and services.
The bank is expected to end its large bond-buying program by early July before beginning its first rate hike in more than a decade.Last week, the bank’s president, Christine Lagarde, put it in unusually clear language. Expected path for rate hikes — Signals rate hikes in July and September.
The bank’s chief economist Philip Lane said recently that a 0.25 percentage point increase could be possible at one time, but some policymakers said there may be a case for a 0.5 percentage point increase, which is higher than normal.
Esher Nelson and Melissa Eddie Contribution report.