Eurozone inflation in May reached its highest annual level since the euro was launched in 1999, the European Statistical Bureau reported on Tuesday, as a record rise in energy and food prices boosted by the Russian war in Ukraine continued to ripple through the economy of the continent, thereby lifting the ghost of a decline in recession.
Annual inflation in the 19 countries using the euro currency jumped to a record 8.1 percent in May, from 7.4 percent in April. Prices have been rising for 10 consecutive months, showing some signs of letting go, deepening a cost-of-living crisis for consumers and forcing European policymakers to promise a range of measures to stave off the pain. In the United States, consumer price inflation has reached 8.3 percent, April data showed, a slight moderation from previous months.
The European Commission recently lowered its forecasts for economic growth to 2.7 percent this year, from 4 percent rough in the winter. At the same time, inflation is hitting record highs and is expected to average 6.8 percent for the year, the commission’s forecast, which leads a growing number of economists to warn that Europe may tip into a sharp slowdown or immediate recession before the end of the year.
As inflation rates have risen, the European Central Bank has accelerated its policy response, saying the period of negative interest rates could be as early as September.
Energy costs remain the single biggest factor pushing up prices for consumers and businesses, rising in May by a record 39.2 percent from the same month a year earlier, while processed foods, alcohol and tobacco rose by 7 percent.
European leaders reached a political agreement early on Tuesday morning on an embargo on most Russian oil imports, a once-in-a-lifetime measure aimed at punishing Russia, but which economists say will also further hurt European households and industry. pushing prices even higher.
Germany, Europe’s largest economy, has been hit hardest, with inflation rising 8.7 percent. France (5.8 percent), Spain (8.5 percent) and Italy (7.3 percent) also saw consumer prices continue to climb with a month-long climb, prompting lawmakers in those countries to offer caps on energy prices or discounts for households. with low incomes to offset the cost of gas and diesel.
In Germany, from June, for example, the government will offer reductions in the price of gas at the pump and a monthly $ 10 ticket for public transport throughout the country.
The increase in energy costs has had by far the biggest impact on countries closest to Russia’s borders. Inflation in Estonia, for example, which had previously rejected Russian gas but is now subject to volatile market fluctuations in energy prices, boosted by a staggering annual rate of 20.1 percent, nearly double the 11 percent recorded in January. In Lithuania, annual inflation rose to 18.5 percent, and in Latvia it reached 16.4 percent.
In the past year, when inflation began to rise, some European Central Bank policymakers were reluctant to act, while wage growth in the region slowed. But as consumer prices continue to climb and have spread to more goods and services, the bank is stepping up its process of so-called policy normalization.
By early July, the bank is expected to end its large bond purchase program, and then, for the first time in more than a decade, begin to raise interest rates. Last week, Christine Lagarde, the bank’s president, laid out in unusually clear terms the expected path for interest rate hikes – signaling hikes in July and September.
The bank’s chief economist, Philip Lane, recently said that increases would probably be a quarter of a percentage point at a time, but some policymakers have suggested that a larger than normal increase, of half a percentage point, might be justified.
Eske Nelson en Melissa Eddy contributed reporting.