LONDON ( Associated Press) – Inflation in countries that use the euro set another eye-watering record, fueled partly by a massive increase in energy costs fueled by Russia’s war in Ukraine.
Annual inflation in 19 eurozone countries hit 8.6 percent in June, up from 8.1 percent recorded in May, according to the latest data published on Friday by the European Union’s statistics agency, Eurostat. Inflation is at its highest level since record-keeping began for the euro in 1997.
Energy prices rose 41.9 percent, and food, alcohol and tobacco prices rose 8.9 percent, both faster than the increase reported the previous month.
Energy demand has soared as the global economy bounces back from the depths of the COVID-19 pandemic and Russia’s invasion of Ukraine has made things worse.
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EU leaders agreed to impose sanctions on most Russian oil imports by the end of the year, pushing up prices. The 27-nation bloc wants to penalize Moscow and reduce its reliance on Russian energy, but it is also adding to financial pain for people and businesses as utility bills and prices go up at the pump.
Russia last month reduced deliveries of natural gas used for the power industry to several EU countries such as Germany, Italy and Austria, on top of cutting gas to France, Poland, Bulgaria and others.
“Importantly, the month of June has driven up energy prices due to oil embargoes and reduced gas supplies,” Bert Collijn, senior eurozone economist at ING Bank, wrote in a commentary.
Rising consumer prices are a problem around the world, with the US and UK seeing inflation at 40-year highs of 8.6 per cent and 9.1 per cent respectively. This has prompted the US Federal Reserve, the Bank of England and other central banks around the world to approve a series of interest rate hikes to combat inflation.
Collision said the eurozone’s latest “ugly inflation reading” puts pressure on the European Central Bank to act quickly.
The ECB is planning its first interest rate hike in 11 years this month, followed by another hike in September. The bank’s president, Christine Lagarde, said this week that she wanted to move slowly to deal with rising consumer prices, to avoid an economic recovery, but said she would go ahead with big rate hikes if inflation rises above expectations. Leaving the door open for
“I don’t think we’re going to go back to that environment of low inflation,” Lagarde said on Wednesday at an ECB forum in Sintra, Portugal. “I think that this major geopolitical setback as a result of the pandemic has forces that we are facing now that are going to change the picture and the landscape within which we operate.”
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But central banks run the risk of causing a recession because they make lending more expensive.
Inflation in the euro area has been setting monthly records since last year, underscoring that the war’s impact on global energy supplies is making life more expensive for 343 million people.
So-called core inflation was more stable except for volatile energy and food categories. Growth in prices of goods such as clothing, appliances, cars, computers and books remained fairly steady at 4.3 per cent, while that of services increased by 3.4 per cent.
EU data also shows that neighboring Russia, which is trying to wean itself off cheap Russian gas, is bearing the brunt of rising prices. Annual inflation was 22 percent for Estonia, 20.5 percent for Lithuania and 19 percent for Latvia.
Poland, which does not use the euro but is a member of the European Union, reported on Friday that inflation rose to 15.6 percent in June from a year earlier, the highest rate in a quarter-century. This was an increase at an annual rate of 13.9 per cent in May.
Analysts noted that the biggest increase in Poland was in petrol and diesel prices, which have risen 46.7 percent from a year earlier. Food prices increased by 14.1 percent.
Associated Press reporter Monica Sisowska in Warsaw, Poland contributed.