BRUSSELS (Dispatches) --
Inflation across the eurozone has soared to a fresh record of 8.6% in June as Russia’s war in Ukraine adds to the cost of living crisis.
Figures from the EU statistics agency Eurostat showed consumer price inflation increased from 8.1% in May, reaching the highest level since relevant records began in 1997, two years before the euro was launched.
Adding to pressure on the European Central Bank as it plans for the first rise in interest rates for 11 years later this month, the latest snapshot showed energy prices rose at an annual rate of almost 42% in June, compared with 39% in May.
Alastair George, chief investment strategist at the financial research firm Edison Group, said: “It may be a difficult day in the office for ECB policymakers, with annual inflation at 8.6% more than four times the 2% target – but it is even more difficult for low-income consumers facing 40% increases in energy prices.”
Heaping pressure on households across the 19-member single-currency bloc, the inflationary surge comes as the Russian war in Ukraine drives up wholesale oil and gas prices across the continent.
Households are also facing a sharp rise in the price of food, alcohol and tobacco, with an almost 9% annual inflation rate. The price of non-energy industrial goods rose by 4.3% on the year, up from an annual rate of 4.2% in May, while services inflation cooled slightly from 3.5% in May to 3.4% in June.
The world’s biggest economies are facing the highest rates of inflation for 40 years as the fallout from the coronavirus pandemic disrupts global supply chains and Vladimir Putin’s invasion of Ukraine drives up energy costs, putting pressure on central banks to raise interest rates.
This week the leaders of the U.S. Federal Reserve, the ECB and the Bank of England warned the
world economy was facing a new period of persistently high inflation, unleashed by the pandemic after decades of stability.
However, the UK is suffering a more severe bout of inflation than other major economies and worse slowdown in the economy. Inflation in the UK reached 9.1% in May, above the average rate for the eurozone and the highest in the G7.
According to research by the consultancy NielsenIQ released on Friday, prices for fast-moving consumer goods – including perishable food, drinks and health care – rose at 7.5% in the year to the end of April in the UK, compared with 6.9% across Europe.
Figures showed Britain’s manufacturing sector lost ground in June as growth in factory output neared a standstill. The closely watched S&P Global/CIPS UK Manufacturing PMI, which is tracked by the Bank of England and Treasury for early warning signs from the economy, showed activity rose at the slowest pace in two years, as new orders fell for the first time since the third nationwide coronavirus lockdown in January 2021.
The latest snapshot showed manufacturers of consumer goods were hit especially hard, reflecting weaker household demand as people rein in their spending amid the cost of living crisis.
Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Supply chain managers reported that ports and paperwork were their undoing in June with Brexit a thorn in the side of manufacturers combined with weaker domestic demand, inefficient performance in supply chains and an overall shaky UK economy.”
French inflation climbed further from the previous month to a record high of 6.5%, according to official preliminary figures on Thursday, adding headwinds to the eurozone’s second-biggest economy.
The INSEE statistics agency said prices in June had risen by 0.8% from May, and that 12-month June preliminary inflation stood at 6.5%. Analysts polled by Reuters had forecast preliminary annualized inflation in June at 6.3%.
INSEE said food and energy prices had risen sharply due to disruption resulting from the Ukraine war.
President Emmanuel Macron’s government is under pressure as a result of the higher living costs, while the European Central Bank (ECB) has flagged it will raise rates in July and September to try to tackle rising inflation.
Elsewhere within the eurozone economic bloc this week, Spanish 12-month inflation rose to 10.2% in June, marking the first time it had surpassed 10% since April 1985.
The world’s top central bank chiefs said this week that bringing down high inflation around the world would be painful and could even crash economic growth but nevertheless it had to be done quickly.
ECB President Christine Lagarde said the low inflation of the pre-pandemic era would not return and that the ECB, which has persistently underestimated price growth, had to act now because price growth was likely to remain above the 2% target for years to come.