A market in the center of Bonn, Germany on February 5, 2022.
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Prices in the eurozone continued their upward trend in May, reaching a record for the seventh month in a row.
Inflation stood at 8.1% for the month, according to preliminary figures from the European Statistics Office on Tuesday, up from April’s record high of 7.4% and ahead of expectations of 7.8%.
It comes after inflationary pressures from several major European economies have been positively surprised in recent days. German inflation (harmonised to be comparable with other EU countries) stood at 8.7% yoy in May, preliminary figures showed on Monday – significantly better than analysts’ expectations of 8% and a sharp increase from the 7.8% in April.
French inflation also beat expectations in May to a record high 5.8%, up from 5.4% in April, while harmonized Spanish consumer prices rose 8.5% year-on-year in May and expectations were 8.1. % exceeded.
Across the eurozone, the record year-on-year increase in consumer prices was driven by rising energy costs, which amounted to 39.2% (up from 37.5% in April) and a 7.5% increase in food, alcohol and tobacco prices ( versus 6.3%).
But even without energy and food prices, inflation rose from 3.5% to 3.8%, Eurostat added.
Rising prices have been exacerbated in recent months by the war in Ukraine, particularly food and energy costs, as exports are blocked and countries in the West are making efforts 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, pushing prices up. Charles Michel, president of the European Council, said the move would affect 75 percent of Russia’s oil imports.
Inflation – which remains persistently high not only in Europe, but also in the UK, US and beyond – is causing a headache for central banks, which are also balancing the risk of a recession.
Earlier this month, European Central Bank president Christine Lagarde said she was anticipating a rate hike at the central bank’s July meeting.
“Based on the current outlook, we are likely in a position to get out of negative interest rates by the end of the third quarter,” she wrote in a blog post. “If the euro area economy were to overheat as a result of a positive demand shock, it would make sense to raise key interest rates above neutral in succession.”
The Governing Council of the ECB will meet on 9 June and then on 21 July.
Goldman Sachs Chief European Economist Jari Stehn told CNBC on Tuesday that the Wall Street bank expects 25 basis points of the ECB’s deposit rate at each of its upcoming meetings over the next year, with the rate currently moving from -0.5% to 1.5. % in June. 2023. Goldman expects headline inflation in the euro area to peak at 9% in September.
“But remember that a lot of this is driven by energy prices, a lot of it is driven by things related to global bottlenecks, and the core inflation numbers, if you exclude food and energy prices, run at about 3.5%. growth is just above 2%,” Stehn said ahead of Tuesday’s data release.
“So underlying inflationary pressures in the Eurozone have definitely strengthened, so we think they will normalize pretty quickly, but they’re not running at the same level as we’re seeing in the US and UK, where nuclear power inflation is running around 6% and where central banks – or the Fed in particular – need to take a more decisive approach to tightening policies than the ECB.”