Brussels: Eurozone inflation hit a new record in August, official data showed on Wednesday, adding to pressure on the European Central Bank to raise interest rates to contain prices from war in Ukraine.
Fuel prices soared following Russia’s invasion of Ukraine pushed annual inflation in the 19-country single currency zone to a record-high 9.1% for the year, according to Eurostat.
Consumer prices accelerated to 8.9% in July.
Germany’s powerful Federal Central Bank Governor Joachim Nagel immediately declared that the ECB should be planning a “significant increase in interest rates in September”.
“Otherwise, inflation expectations could permanently exceed our target of 2%,” he warned.
Headline rates have increased since November 2021 as global supply chains are under stress. War broke out in Ukraine in February and the European summer was characterized by drought, leading to higher food prices.
The ECB is expected to raise interest rates at its next meeting on Sept. 8 after raising interest rates for the first time in a decade in July. Interest rates were kept low as Europe emerged from the coronavirus recession.
France, which capped energy prices, posted the lowest interest rate in the euro zone at 6.5% in August, according to Eurostat.
However, the powerhouse Germany had a high 8.8%, followed by Italy at 9% and Spain at 10.3%.
Russia’s neighbors in the Baltics, Estonia, Lithuania and Latvia were the most affected, at 25.2%, 21.1% and 20.8% respectively.
Capital Economics economist Jack Allen-Reynolds has warned that eurozone inflation could reach 10% by the end of the year, even if banks raise interest rates.
“The balance of odds is shifting towards a 75 basis point rise next week,” he said.The ECB raised interest rates by 50 basis points from zero to 0.5% in July.
– Sudden braking? –
Bert Collizin, senior economist at Bank ING, said rising commodity prices in broader inflation should worry observers as much as rising energy.
“The increase from 4.5% to 5% is well above expectations and raises concerns about lingering secondary effects from input cost shocks,” he said.
However, he noted that wage growth data for the second quarter of this year (where salaries rose by only 2.1%) suggested Europe was already tightening its belts.
“The question is how much the ECB needs to hit the brakes, as the economy is slowing rapidly and probably already contracting by this point,” he said.
“Hawks want 75 basis points, and it looks like an additional rate hike of at least 50 basis points in September is agreed2,” he said.
“The big question is how the ECB will respond after this, if indeed the signs of economic distress become more apparent and inflation continues to be driven largely by supply-side factors.”
Among the items in the eurozone inflation basket, energy prices recorded the highest annual gains again in August, but slowed slightly to 38.3% from 39.6% in July.
Food prices, including alcohol and tobacco, rose 10.6% from 9.8% in July. Industrial goods and services each increased by 5% and he 3.8, also accelerating compared to the previous month.
https://www.kuwaittimes.com/eurozone-inflation-jumps-to-new-record-9-1/ Eurozone inflation jumps to new record 9.1%