Market in the center of Bonn, Germany on February 5, 2022.
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Prices in the euro area continued to rise in May, reaching a record high for the seventh consecutive month.
Inflation reached 8.1% for the month, according to preliminary data from the European Statistical Office on Tuesday, compared to a record 7.4% in April and higher than expected by 7.8%.
This comes after the inflationary footprints of several major European economies, surprised in recent days. German inflation (harmonized to be comparable to other EU countries) reached an annual 8.7% in May, preliminary data on Monday showed – well above analysts’ expectations of 8% and a sharp decline of 7.8% observed in April .
French inflation also exceeded expectations in May to a record 5.8% from 5.4% in April, while harmonized Spanish consumer prices jumped 8.5% year on year in May, exceeding expectations by 8.1%.
In the euro area, the record annual increase in consumer prices was driven by rising energy costs, which reached 39.2% (from 37.5% in April) and a 7.5% increase in food, alcohol and tobacco prices (from 6.3 %).
However, even without energy and food prices, inflation has risen from 3.5% to 3.8%, Eurostat added.
Rising prices have worsened in recent months since the war in Ukraine, especially food and energy spending, as exports are blocked and Western countries struggle to reduce their dependence on Russian gas.
EU leaders agreed late Monday to ban 90% of Russia’s crude oil by the end of the year, leading to higher prices. Charles Michel, president of the European Council, said the move would immediately affect 75% of Russia’s oil imports.
Inflation – which remains consistently high not only in Europe but also in the United Kingdom, the United States and beyond – is causing headaches for central banks, which are also balancing the risk of recession.
Earlier this month, European Central Bank President Christine Lagarde said she expected interest rates to rise at a central bank meeting in July.
“Based on the current outlook, we will probably be able to get out of negative interest rates by the end of the third quarter,” she wrote in a blog post. “If the eurozone economy was overheating as a result of a positive demand shock, it would make sense for political interest rates to rise consistently above the neutral rate.
The Governing Council of the ECB is due to meet on 9 June and then on 21 July.
Goldman Sachs chief European economist Jari Sten told CNBC on Tuesday that the Wall Street bank expects an increase of 25 basis points in the ECB’s interest rate on deposits at each of its upcoming meetings next year, rising from -0.5 % currently to 1.5% in June 2023. Goldman expects core inflation in the euro area to peak at 9% in September.
“But remember, a lot of this is driven by energy prices, a lot of that is driven by global bottlenecks, and core inflation values, if you eliminate food and energy prices, are around 3.5 %. growth is just over 2%, “Sten said ahead of Tuesday’s release.
“So the main inflationary pressure in the eurozone has certainly increased, so we think it will return to normal pretty quickly, but they are not working at the same level as we see in the US and the UK, where core inflation is around 6% and when central banks – or the Fed in particular – need to take a more decisive approach to tightening policy than the ECB. “
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