Inflation in the euro zone in May reached its highest annual level since the creation of the euro in 1999, the European statistics agency reported on Tuesday, as a record rise in energy prices and food fueled by Russia’s war in Ukraine continued to ricochet. continent’s economy, raising the specter of a relapse into recession.
Annual inflation in the 19 countries that use the euro hit a record 8.1% in May, down from 7.4% in April. Prices have risen for 10 consecutive months and show few signs of slowing, deepening the cost of living crisis for consumers and forcing European policymakers to commit to various measures to ease the pain. In the United States, consumer price inflation rose to 8.3%, according to April data, a slight moderation from previous months.
The European Commission recently lowered its forecast for economic growth to 2.7% this year, from an estimated 4% in winter. At the same time, inflation is at record highs and is expected to average 6.8% for the year, according to the commission’s forecast, leading a growing number of economists to warn that Europe could tip into a sharp slowdown or outright recession before the end of the year. .
As inflation rates climbed, the European Central Bank accelerated its policy response and said the era of negative interest rates could be over as early as September.
Energy costs continue to be the main driver of price increases for consumers and businesses, rising in May by a record 39.2% from the same month a year earlier, while food processed, alcohol and tobacco increased by 7%.
European leaders reached a political agreement early Tuesday morning on an embargo on most Russian oil imports, a once unthinkable move that aims to punish Russia but which economists say will also further hurt households and society. European industry by pushing prices even higher.
Germany, Europe’s largest economy, was among the hardest hit, with inflation rising 8.7%. France (5.8%), Spain (8.5%) and Italy (7.3%) also saw consumer prices continue to climb for a month, prompting lawmakers in those countries to offer caps on energy prices or rebates to low-income households to offset the cost of gas. and diesel.
In Germany, from June, for example, the government will offer discounts on the price of gasoline at the pump and a monthly $10 ticket for public transport across the country.
Rising energy costs have had by far the greatest impact on the 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 fluctuations in the energy price market, has increased by a breathtaking annual rate of 20.1%, or almost double the 11% recorded in January. In Lithuania, annual inflation reached 18.5% and in Latvia it reached 16.4%.
Over the past year, as inflation began to rise, some European Central Bank policymakers were reluctant to act as wage growth in the region moderated. But as consumer prices have continued to climb and spread to more goods and services, the bank is accelerating its process of so-called policy normalization.
In early July, the bank is expected to end its massive bond-buying program and then start raising interest rates for the first time in more than a decade. Last week, Christine Lagarde, the bank’s chair, laid out in unusually clear terms the expected trajectory of interest rate hikes – pointing to increases in July and September.
The bank’s chief economist, Philip Lane, recently said the increases would likely 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, could be justified.
Eshe Nelson and Melissa Eddy contributed report.