As food and energy prices rise, eurozone inflation reaches a new high
Prices in the eurozone continued to rise in May, reaching a new high for the seventh month in a row.
According to preliminary figures released Tuesday by Europe’s statistics office, inflation was 8.1 percent for the month, up from 7.4 percent in April and higher than expectations of 7.8 percent.
It comes after several major European economies’ inflation prints surprised to the upside in recent days. German inflation (harmonised to be comparable with other EU nations) was 8.7 percent year-on-year in May, according to preliminary figures released on Monday, far exceeding analyst expectations of 8% and marking a significant increase from 7.8 percent in April.
French inflation rose to a record 5.8 percent in May, up from 5.4 percent in April, while harmonised Spanish consumer prices rose by an annual 8.5 percent in May, exceeding expectations of 8.1 percent.
The record annual consumer price increase in the eurozone was driven by soaring energy costs, which reached 39.2 percent (up from 37.5 percent in April), and a 7.5 percent increase in food, alcohol, and tobacco prices .up from 6.3 percent.
However, even without energy and food prices, inflation rose from 3.5 percent to 3.8 percent, according to Eurostat.
Rising prices, particularly food and energy costs, have been exacerbated in recent months by the Ukraine war, as exports have been blocked and countries across the West have scrambled to reduce their reliance on Russian gas.
Late Monday, EU leaders agreed to ban 90 percent of Russian crude oil by the end of the year, sending prices higher. Goldman expects eurozone headline inflation to reach 9% in September.
But keep in mind that a lot of this is driven by energy prices, a lot of it is driven by global bottlenecks, and the core inflation numbers, excluding food and energy prices, are around 3.5 percent.
As a result, while underlying inflation pressures in the eurozone have certainly firmed, which is why we believe they will normalise fairly quickly, they are not running at the same levels that we are seeing in the US and the UK, where core inflation is running at around 6% and central banks — particularly the Fed — need to be more decisive in tightening policy than the ECB. ”