A market in the center of Bonn, Germany February 5, 2022.
Nurphoto | Nurphoto | Getty pictures
Prices in the eurozone continued to rise in May, reaching record highs for the seventh month in a row.
Inflation came in at 8.1% for the month, according to preliminary figures from the European Statistics Office on Tuesday, up from April̵[ads1]7;s record high of 7.4% and higher than expectations of 7.8%.
It comes after inflationary pressures from several major European economies surprised upside in recent days. German inflation (harmonized to be comparable with other EU nations) came in at 8.7% annually in May, showed preliminary figures on Monday – significantly higher than analysts’ expectations of 8% and marked a sharp rise from 7.8% in April.
French inflation also exceeded expectations in May to a notch record of 5.8%, up from 5.4% in April, while harmonized Spanish consumer prices jumped by 8.5% annually in May, exceeding expectations of 8.1%.
Across the eurozone, the record high annual increase in consumer prices was driven by sky-high energy costs, which reached 39.2% (up from 37.5% in April) and a 7.5% increase in food, alcohol and tobacco prices (up from 6, 3%).
But even without energy and food prices, inflation rose from 3.5% to 3.8%, Eurostat added.
Rising prices have worsened in recent months of the war in Ukraine, especially food and energy costs, as exports are blocked and countries across the West are trying to reduce their dependence on Russian gas.
Late Monday, EU leaders agreed to ban 90% of Russian crude oil by the end of the year, sending prices higher. Charles Michel, president of the European Council, said the move would immediately hit 75% of Russian oil imports.
Inflation – which remains persistently high not only in Europe but also in the UK, the US and beyond – causes headaches for central banks, which also balances the risk of recession.
Earlier this month, European Central Bank President Christine Lagarde said she expected a rate hike at the central bank meeting in July.
“Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter,” she wrote in a blog post. “If the euro area economy overheated as a result of 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 will meet on 9 June and then on 21 July.
Goldman Sachs European chief economist Jari Stehn told CNBC on Tuesday that the Wall Street bank expects 25 basis points increases to the ECB’s deposit rate at each of its upcoming meetings over the next year, taking interest rates from -0.5% at the moment to 1.5%. in June 2023. Goldman expects headline inflation in the euro area to peak at 9% in September.
“But keep in mind that much of this is driven by energy prices, much of it is driven by things related to global bottlenecks, and core inflation figures, if you remove food and energy prices, run at about 3.5%. Growth is just over 2%, “Stehn said before Tuesday’s data release.
“So the underlying inflationary pressures in the euro area have certainly intensified, which is why we think they will normalize fairly quickly, but they are not running at the same level as we see in the US and the UK, where core inflation is around 6%, and where central banks – or the Fed in particular – must take a more decisive approach to tightening policy than the ECB.