Frankfurt, Germany –
Inflation in Europe fell again in June, but it fell too late to reassure frustrated shoppers about price tags or to prevent further interest rate hikes that would raise borrowing costs across the economy. .
Eurostat, the European Union’s statistical office, said on Friday that the annual rate in the 20 countries that use the euro currency was 5.5%, down from 6.1% in May.
This is a significant drop from October’s peak of 10.6%, but some of the world’s major central banks intend to continue raising interest rates and keep rates unchanged as prices continue to rise in the US, Europe and the UK. I had no choice but to clarify. Until inflation falls to 2%, the target considered best for the economy.
European consumers felt relief from energy costs, which fell 5.6% after last year’s crisis, while food prices rose 11.7% year-on-year, slowing from 12.5% in May.
Core inflation, which excludes volatile food and fuel costs and provides a clearer indication of long-term price pressures, edged up to 5.4% from 5.3% the previous month.
Inflation rates varied widely across the Eurozone, with Slovakia having the highest at 11.3%. Germany, Europe’s largest economy, had 6.8%, while France had 5.3%. Three countries fell within the ECB’s 2% target: Luxembourg at 1%, Belgium at 1.6% and Spain at 1.6%.
The first outbreak of inflation was fueled by Russia’s invasion of Ukraine, driving up energy and food prices. The recovery of the global economy from the COVID-19 pandemic has also strained the supply of parts and raw materials.
Energy and wheat prices have stabilized at pre-war levels and supply chain problems have eased, but inflation continues to meander in other parts of the economy.
In vast swaths of the economy, including everything from office cleaning to haircuts to healthcare, companies that provide services instead of goods have raised prices. Hotels and airlines are charging high prices for summer travelers, and workers are demanding higher wages to make up for lost purchasing power.
The European Central Bank, along with others around the world, is rapidly raising interest rates, the main medicine against inflation. A rise in the ECB’s benchmark interest rate will make it more expensive for people to borrow to buy houses and cars, and for businesses to acquire new office buildings and factory equipment. As a result, the demand will decrease, and the price level will work in the direction of lowering.
One obvious impact is housing, which has started to fall after years of rising prices across Europe as buyers avoid applying for mortgages. Those who have to refinance their mortgages also face the possibility of paying thousands of yen more than before.
Inflation fell sharply as the first rate hike took hold, but reaching the last mile to 2% could take longer and be more difficult, central bank officials said.
ECB President Christine Lagarde warned this week that inflation had turned out to be more persistent than expected. At the central bank’s annual policy meeting in Sintra, Portugal, he, along with Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey, said interest rates would rise further and remain at that level for as long as necessary. stated that it would stay in
Jack Allen Reynolds, deputy chief eurozone economist at Capital Economics, said the strength in core inflation in Friday’s data meant “the ECB will continue to raise rates.”
Lagarde almost promised a rate hike at the ECB’s July 27 meeting, and Allen Reynolds said, “There’s a good chance there will be another rate hike at the next meeting in September.”
The ECB has raised interest rates eight times in a row, from -0.5% to 3.5%. Concerns have risen about the potential impact of high interest rates on growth, especially as the Eurozone economy contracted slightly late last year and early this year.
But with the unemployment rate hitting a record low of 6.5%, the economy still has significant strengths.
Lagarde said on Thursday that a slight drop in European output looked more like stagnation and was part of the risk in the ECB’s base forecast, which does not include a recession.