FRANKFURT (Dispatches) -- Eurozone inflation rose to another record high in July and its peak could still be months away, keeping pressure on the European Central Bank to opt for another big interest rate increase in September.
Consumer price growth in the 19 countries sharing the euro currency accelerated to 8.9% in July from 8.6% a month earlier, far above expectations for 8.6% and well clear of the ECB’s 2% target, data from Eurostat, the EU’s statistics agency, showed on Friday.
Inflation was initially driven by post-pandemic supply bottlenecks but more recently the fallout of Russia’s war in Ukraine has been the main culprit as it has pushed up energy, metals and food prices.
While high energy prices remain a major inflationary factor, processed food and services prices have also surged, suggesting that inflation is becoming increasingly broad.
Fearing that price growth is spiraling out of control, the ECB raised rates by 50 basis points this month, breaking its own guidance for a smaller move, and promised further rate hikes to prevent the onset of a hard-to-break wage-price spiral.
But inflation is also a dilemma for the bank. Sky high food and energy costs deplete savings and ultimately slow growth, possibly pushing the bloc into recession, in the worst case.
Indeed, Germany, the eurozone’s biggest economy, stagnated in the second quarter before what could be a difficult third quarter. The U.S. economy meanwhile unexpectedly contracted in the second quarter.
Europe’s risk is largely tied to its reliance on Russian energy, with Moscow throttling down flows of natural gas that power factories, generate electricity and heat homes in the winter.
More reductions this week through a major pipeline to Germany, Nord Stream 1, have heightened

fears that the Kremlin may cut off supplies completely. That would force rationing for energy-intensive industries and spike already record-high levels of inflation driven by soaring energy prices, threatening to plunge the 27-nation bloc into recession.
While European Union governments approved a measure this week to reduce gas use by 15% and have passed tax cuts and subsidies to ease a cost-of-living crisis, Europe is at the mercy of Russia and the weather.
A cold winter, when natural gas demand soars, could draw down storage levels that governments are now scrambling to fill but has been made infinitely harder by Russia’s cuts.
“With the region’s gas supply now reduced and inflation set to remain high for some time, the eurozone is likely to fall into recession,” Michael Tran, an assistant economist with Capital Economics, said in an analysis this week.
While the European Central Bank has begun raising rates to cool inflation, it had trailed other central banks like the Fed and the Bank of England in making credit more expensive, fearing the outsize impact of soaring energy prices tied to the war.
The impact of the ECB’s recent rate hike on inflation was “very limited, although it does add to a further cooling of demand in the eurozone,” wrote ING’s Colijn.
“With a recession looming and inflation reaching new highs, the question is how the ECB will respond to an economy which is already cooling down,” he said.
Cities in Germany are switching off spotlights on public monuments, turning off fountains, and imposing cold showers on municipal swimming pools and sports halls, as the country races to reduce its energy consumption in the face of a looming Russian gas crisis.
Hanover in north-west Germany on Wednesday became the first large city to announce energy-saving measures, including turning off hot water in the showers and bathrooms of city-run buildings and leisure centers.
Municipal buildings in the Lower Saxony state capital will only be heated from 1 October to 31 March, at no more than 20C (68F) room temperature, and ban the use of mobile air conditioning units and fan heaters. Nurseries, schools, care homes and hospitals are to be exempt from the saving measures.
“The situation is unpredictable,” said the city’s mayaor, Belit Onay, of the Green party. “Every kilowatt hour counts, and protecting critical infrastructure has to be a priority.”
Hanover’s 15% savings target is in line with the reductions the European Commission this week urged member states to make to ensure they can cope in the event of a total gas cutoff from Russia. Germany, which is more reliant on Russian gas imports than other European countries, is under pressure to lead the way.