LONDON ( Associated Press) – Inflation in countries using the euro has set another notable record, boosted by a sharp rise in energy costs fueled in part by Russia’s war in Ukraine.
Annual inflation in the eurozone’s 19 countries reached 8.6 percent in June, rising above the 8.1 percent recorded in May, according to the latest figures published by the European Union’s statistics agency, Eurostat, on Friday. Inflation has been at its highest level since record keeping for the euro began in 1997.
Energy prices rose by 41.9 per cent, and prices for food, alcohol and tobacco rose by 8.9 per cent, both faster than the increases recorded the previous month.
The demand for energy increased as the world economy recovered from the depths of the COVID-19 pandemic and Russia’s invasion of Ukraine worsened.
READ MORE: From the stock market to crypto, a six-month penalty for investors
European Union leaders have agreed to ban most Russian oil imports by the end of the year, causing a rise in prices. The bloc of 27 nations wants to punish Moscow and reduce its dependence on Russian energy, but it also contributes to financial pain for people and businesses as utility bills and prices at the pump skyrocket.
Russia also reduced natural gas supplies used to power the industry and generate electricity to several EU countries such as Germany, Italy and Austria last month, in addition to cutting off gas to France, Poland, Bulgaria and others.
“Importantly, the oil embargo and gas supply squeeze that unfolded during June have pushed up energy prices,” ING Bank senior eurozone economist Bert Colijn wrote in a comment.
Rising consumer prices are a global problem, with the US and Britain seeing inflation reach 40-year highs of 8.6 per cent and 9.1 per cent respectively. As a result, the US Federal Reserve, Bank of England and other central banks worldwide have approved a series of interest rate hikes to curb inflation.
Colijn said the eurozone’s latest “ugly inflation reading” was putting 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. Bank President Christine Lagarde said this week that she wants to move gradually to tackle rising consumer prices, to prevent the economic recovery from being suppressed, but leaves the door open for larger rate hikes in case inflation rises more than expected.
“I do not think we are going to go back to that environment of low inflation,” Lagarde said on Wednesday at an ECB forum in Sintra, Portugal. “I think there are forces unleashed as a result of the pandemic, as a result of this massive geopolitical shock we are now facing that is going to change the picture and the landscape within which we operate.”
NEWS COVER: Fed Chairman Powell defends aggressive rate hikes, acknowledges recession is possible
But central banks run the risk of causing a recession as they make loans more expensive.
Inflation in the eurozone has set monthly records since last year, underlining how the war’s impact on global energy supplies is making life more expensive for 343 million people.
So-called core inflation was more stable after excluding the volatile energy and food categories. Price increases for goods such as clothing, accessories, cars, computers and books kept fairly steady at 4.3 percent, as did prices for services at 3.4 percent.
EU data also showed that neighboring Russia, which has tried to wean itself off cheap Russian gas, is bearing the brunt of rising prices. Annual inflation came in at 22 percent for Estonia, 20.5 percent for Lithuania and 19 percent for Latvia.
Poland, which does not use the euro but is an EU member, reported on Friday that inflation had risen to 15.6 percent in June from a year earlier, the highest rate in a quarter-century. This was an increase from the annual rate of 13.9 percent in May.
Analysts noted that the biggest increase in Poland was in petrol and diesel prices, which rose 46.7 percent from a year ago. Food prices rose by 14.1 percent.
Associated Press reporter Monika Scislowska in Warsaw, Poland, contributed.
