A market in downtown Bonn, Germany, on February 5, 2022.
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Eurozone prices continued to rise in May, reaching a record high for the seventh consecutive month.
Inflation stood at 8.1% for the month, according to preliminary figures from the European statistics office on Tuesday, up from April’s record high of 7.4% and above expectations of 7, 8%.
This comes after inflation figures from several major European economies surprised on the upside in recent days. German inflation (harmonized to be comparable to other EU countries) hit an annual rate of 8.7% in May, according to preliminary figures released on Monday – well beating analysts’ expectations of 8% and marking a steep slope compared to the 7.8% observed in April.
French inflation also beat expectations in May to a record 5.8%, from 5.4% in April, while Spanish harmonized consumer prices jumped 8.5% in May, topping expectations of 8.1%.
Across the euro area, the record annual rise in consumer prices was driven by soaring energy costs, which reached 39.2% (from 37.5% in April) and an increase 7.5% of food, alcohol and tobacco prices (compared to 6.3%).
However, even without energy and food prices, inflation rose from 3.5% to 3.8%, Eurostat added.
Rising prices have been exacerbated in recent months by the war in Ukraine, particularly food and energy costs, as exports are blocked and Western countries scramble to reduce their dependence on Russian gas.
European leaders agreed late Monday to ban 90% of Russian crude oil by the end of the year, driving up prices. Charles Michel, President of the European Council, said the move would immediately affect 75% of Russian oil imports.
Inflation – which remains consistently high not only in Europe, but also in the UK, US and beyond – is causing headaches for central banks, which are also balancing the risk of recession.
Earlier this month, European Central Bank President Christine Lagarde said she expected a rate hike at the central bank’s meeting in July.
“Based on the current outlook, we will likely be able to exit negative interest rates by the end of the third quarter,” she wrote in a blog post. “If the Eurozone economy were to overheat following a positive demand shock, it would make sense for policy rates to be raised sequentially above the neutral rate.”
The Governing Council of the ECB is due to meet on June 9, then on July 21.
Goldman Sachs chief European economist Jari Stehn told CNBC on Tuesday that the Wall Street bank expects 25 basis point hikes in the ECB’s deposit rate at each of its upcoming meetings during next year, taking the rate from -0.5% currently to 1.5% in June. 2023. Goldman expects headline eurozone inflation to peak at 9% in September.
“But remember a lot of that is down to energy prices, a lot of it to global bottleneck factors, and core inflation numbers, if you take the food and energy prices, hovering around 3.5% growth is just over 2%,” Stehn said ahead of Tuesday’s data release.
“So the underlying inflationary pressures in the Eurozone have certainly firmed up, which is why we think they’ll normalize fairly quickly, but they’re not at the same kind of levels that we’re seeing in the US. and in the UK, where core inflation is hovering around 6% and central banks – or the Fed in particular – need to take a more decisive approach to policy tightening than the ECB.”