Annual inflation rate in the eurozone accelerated further to a new record high of 8.6% in June from 8.1% in May, Eurostat data showed Friday (July 1). Figures topped market expectations of 8.4%. Energy had the highest impact on the annual rate, soaring 41.9% compared to June last year followed by the price increases of food, alcohol & tobacco of 8.9%, non-energy industrial goods (4.3%), and services (3.4%).
Among member states,Estonia and Lithuania recorded the highest rise in consumer prices, 22% and 20.5% respectively, while on the other hand, inflation was the lowest in France (6.5%) and Malta (6.1%). The final data is due on July 19.
Meanwhile, core inflation that excludes energy, food, alcohol and tobacco, unexpectedly eased to 3.7% from 3.8%, due to the fiscal support measures to contain energy prices. The rate was forecast to rise to 3.9%.
The fresh inflation data may ratchet up European Central Bank rate hike expectations. The ECB, which has vowed to tackle surging rises, is due to meet in late July to announce it’s increasing rates. The Frankfurt-based institution has said it will hike again in September, meaning its main interest rate could return to positive territory this year — the ECB has had negative rates since 2014.
Speaking in a flash research note after the data release Friday, Capital Economics economist Andrew Kenningham, said that the 8.6% figure is “probably not enough to bring a 50bp rate hike (rather than 25bp) back into play for July.”
“As policymakers are increasingly uncomfortable with their negative-interest rate policy we expect to see bigger rate hikes from September, with the deposit rate rising to +0.75% by year-end,” he added.
Oxford Economics economist Mateusz Urban wrote in a report that June could be the peak of eurozone inflation, but that the pace of price rises “will slow only gradually throughout 2022.”
Kerstin Bernoth and Marcel Fratzscher at the German Institute for Economic Research note: “There is enormous uncertainty how the economic situation and the inflation in the eurozone will develop in the coming months.”