BRUSSELS (NYTIMES) – Record energy prices drove the inflation rate for the countries using the common European currency to 8.6 per cent over the year through June, as the fallout of the war in Ukraine and the economic conflict it has set off between Russia and Western Europe continued to bite.
Nearly half of the 19 countries in the eurozone have now reached double-digit annual inflation, figures released on Friday (July 1) by Eurostat, the European Union’s statistics agency, showed.
The overall rate was the latest record high since the creation of the euro in 1999.
Many eurozone countries depend heavily on Russia as a source of fossil fuels to heat homes and power their economies. But the amount of energy, especially natural gas, flowing to Europe from Russia has been reduced by more than half since Russia’s invasion of Ukraine on Feb 24, driving prices to record levels and leaving European governments scrambling for alternative sources.
The fresh inflation data will bolster plans by the European Central Bank to raise rates for the first time in more than a decade at its meeting in three weeks, and to increase them further later in the year, amid concerns that the risk of persistently high inflation outweighs a deteriorating economic growth outlook.
The situation in each eurozone member varies.
Although inflation in Germany and the Netherlands dipped slightly in June, Spain set a record, hitting double digits for the first time since 1985.
For the three Baltic States in north-east Europe – Latvia, Lithuania and Estonia – prices that high have been a reality for months.
Despite their differences, all of these countries are in some way feeling the effects of the jump in the price of energy, which rose to 41.9 per cent over the year through June, three times the rate in the same period a year earlier, and prices for food, which were up to 8.9 per cent over the past year, also a significant acceleration.
Economists are predicting that higher prices could lead workers to demand higher wages, which could solidify rapid inflation and put more pressure on interest rates to rise.
But the aftereffects of the coronavirus pandemic, combined with the unpredictability of the war, have made forecasts difficult.
Mr Mateusz Urban, an economist at Oxford Economics, wrote in a report that June could be the peak of eurozone inflation, but that the pace of price rises “will slow only gradually throughout 2022”.
But as Ms Kerstin Bernoth and Mr Marcel Fratzscher of the German Institute for Economic Research note, “There is enormous uncertainty how the economic situation and the inflation in the eurozone will develop in the coming months.”