Eurozone Inflation Grows to Another Record High

Date: 31 May 2022 - 22:24

News ID: ۱۰۳۲۴۷

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

operation. Talks to impose an oil embargo have been underway since the start of the month.

“The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline,” according to a May 31 statement from the European Council.

The European Council added that in case of “sudden interruptions” of supply, “emergency measures” will be introduced to ensure security of supply.

That temporary exception covers the remaining Russian oil not yet banned, European Commission President Ursula von der Leyen said in a press conference.

Von der Leyen explained that the temporary exemption was granted so that Hungary, along with Slovakia and the Czech Republic — all connected to the southern leg of the pipeline — have access which they cannot easily replace.

Roughly 36% of the EU’s oil imports come from Russia, a country that plays an outsized role in global oil markets.

The ban could exacerbate worries over an already-tight energy market. Energy prices have soared over the past year, contributing to a heated inflationary environment in many countries.

Meanwhile, fears of negative or zero growth in Europe will be fuelled by data showing the French economy contracted 0.2 percent in the first quarter from the previous three months, in a downward revision.

The European Commission this month sharply cut its eurozone growth forecast for 2022 to 2.7 percent, but warned the outlook was highly uncertain because of the war in Ukraine.