LONDON (Dispatches) -- Eurozone inflation accelerated to another record high in May, data showed Tuesday, as the war in Ukraine stoked energy and food prices and threatened to flatline the economy.
The EU’s Eurostat data agency said that the increase in consumer prices in the 19 countries that use the euro reached 8.1 percent compared to the year before, up from 7.4 percent in April.
The uninterrupted rise in prices heaped pressure on the European Central Bank to speed up interest rate rises for the first time in over a decade.
The U.S. Federal Reserve raised rates by an unusually large 50 basis points at the beginning of May, while the Bank of England sealed its fourth consecutive hike.
The ECB had previously argued that sharp leaps in consumer prices, driven also by the waning effect of Covid-19 pandemic, were likely to let up, downplaying the inflationary threat.
The war in Ukraine disrupted that view, worsening already disrupted supply chains and throwing up new shortages in essential material from wheat to metals.
This remained that case in May with energy prices spiking by a hair-raising 39.2 percent from a year earlier. Food prices went up by 7.5 percent.
Western economies including Germany -- the eurozone’s biggest -- are scrambling to wean themselves off Russian energy, which will also have its effects on inflation.
The EU on Monday agreed to ban two-thirds of its oil dependency by the end of the year -- and German and Polish pledges to voluntarily forgo pipeline deliveries could push the cut to 90 percent -- which could put still more upward pressure on prices.
The ban on Russian oil swiftly hit the market price for oil which means “that risks (to inflation) are skewed once again to the upside”, said Oxford Economics in a note.
“We think headline inflation will peak in the second quarter but will slow only gradually throughout 2022,” it added.
Oil prices jumped after EU leaders reached an agreement late Monday to ban 90% of Russian crude by the end of the year.
U.S. crude futures for July added 2% to trade at $117.38, while Brent crude futures were up 1.4% at $123.37. At one point, U.S. crude rose to $119.42 per barrel — a 12-week high.
The agreement resolves a deadlock after Hungary initially held up talks. Hungary is a major user of Russian oil and its leader, Viktor Orban, has been on friendly terms with Russia’s Vladimir Putin.
Charles Michel, president of the European Council, said the move would immediately hit 75% of Russian oil imports.
The embargo is part of the European Union’s sixth sanctions package on Russia over the Ukraine