Inflation in the euro area in May hit its highest annual level since the creation of the euro currency in 1999, Europe’s statistics agency reported Tuesday, as a record run-up in energy and food prices stoked by Russia’s war in Ukraine continued to ricochet through the Continent’s economy.
Annual inflation in the 19 countries that use the euro currency jumped to a record 8.1%t in May, from 7.4% in April. Prices have been rising for 10 consecutive months and show few signs of letting up, deepening a cost of living crisis for consumers and forcing European policymakers to pledge a variety of measures to blunt the pain. In the United States, consumer price inflation has reached 8.3%, data from April showed, a slight moderation from previous months.
The European Commission recently lowered its economic growth forecasts to 2.7% this year, from the 4% estimated in winter. At the same time, inflation is hitting record levels and is expected to average 6.8% for the year, the commission forecast, leading a growing number of economists to warn that Europe may tip into a sharp slowdown or an outright recession before the end of the year.
As inflation rates have climbed, the European Central Bank has sped up its policy response and said that the era of negative interest rates could be over as soon as September.
Energy costs continue to be the single biggest factor pushing up prices for consumers and businesses, rising in May by a record 39.2% from the same month a year earlier, while processed food, alcohol and tobacco rose by 7%.
European leaders reached a political deal early Tuesday on an embargo on most Russian oil imports, a once-unthinkable measure that is aimed at punishing Russia but that economists say will also further hurt European households and industry by pushing prices even higher.
Germany, Europe’s biggest economy, has been among the hardest hit, with inflation there rising 8.7%. France (5.8%), Spain (8.5%), and Italy (7.3%) also saw consumer prices continue a months-long climb, prompting lawmakers in those countries to offer caps on energy prices or rebates for low-income households to offset the cost of gas and diesel.
In Germany, starting in June, for example, the government will offer reductions for the price of fuel at the pump and a monthly $10 ticket for public transport across the country.
The rise 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 weaned itself off Russian gas but is now subject to volatile market swings in energy prices, surged by an eye-popping annual rate of 20.1%, nearly double the 11% recorded in January. In Lithuania, annual inflation rose to 18.5%, and in Latvia, it reached 16.4%.
In the past year, as inflation began to rise, some European Central Bank policymakers were reluctant to act while wage growth across the region was subdued. But as consumer prices have kept climbing and have spread to more goods and services, the bank is ramping up its process of so-called policy normalization.
By early July, the central bank is expected to end its large bond-buying program, and then begin raising interest rates for the first time in more than a decade. Last week, Christine Lagarde, the bank’s president, laid out in unusually clear terms the expected path for interest rate increases — signaling raises in July and September.
The bank’s chief economist, Philip Lane, recently said that increases were likely to 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 warranted.(Author: Liz Alderman)/(c.2021 The New York Times Company)