New inflation record in Europe: War pushes up food prices | war in Ukraine

Inflation in the 19 countries sharing the common currency stood at 8.6% over the year in June, down from 7.4% in April and 8.1% in May, Eurostat said on Friday. These figures are the highest recorded by the European Statistical Office since the indicator began publication in January 1997.

Record values ​​every month

Consumer price inflation has hit record highs every month since November 2021, although over the past year it has been seen as a temporary phenomenon linked to the strength of the economic recovery from the pandemic shock and supply chain disruptions.

The Russian army’s invasion of Ukraine at the end of February and Western economic sanctions against Moscow are fueling inflation and fueling fears of a sharp fall in gross domestic product (GDP) growth.

From now on, Europeans struggle to feed themselvesemphasizes Philippe Waechter, chief economist at Ostrum Asset Management.

Historically we have never had such a high proportion of food, it will weigh very heavilyhe told AFP, citing the rise in the price of grains and oils used in processed products.

Rising inflation always affects the energy sector first (electricity, oil, gas, etc.). This component of the price index rose by 41.9% over the year in June, after 39.1% in May.

However, food price inflation (including alcohol and tobacco) also accelerated to 8.9% from 7.5% in May.

Mr Waechter fears a major risk to the economy as households are forced to tighten their belts.

At some point, the consumer is forced to compromise: they need their gas to go to work and cut other expenses, creating a negative shock to activity [économique]. »

A quote from Philippe Waechter, Chief Economist at Ostrum Asset Management

In May, Brussels cut its gross domestic product (GDP) growth forecast for the euro zone by 1.3 points in 2022 to 2.7% and raised its inflation forecast by 3.5 points to 6.1% compared to February 10 announced numbers. before the start of the Russian offensive.

The situation could get even worse if Moscow, in response to Western sanctions, decides to completely shut off the gas supply to Europe.

The outlook for the rest of the year is bleakwarns Pushpin Singh, economist at the CEBR research centre.

The current gas shortage caused by reduced Russian exports has prompted Germany and the Netherlands to activate their contingency plans to limit consumption [d’énergie]. In the event of a supply disruption, cutbacks will be imposed on industry and production output will fall. »

A quote from Pushpin Singh, Economist at CEBR Research Center

Eurozone inflation is well above the European Central Bank’s (ECB) target of close to 2%. The institution is therefore preparing to hike rates in July for the first time in 11 years, at the risk of growth slowing further.

This prospect re-ignites the risk of a eurozone debt crisis, with widening interest rate differentials between northern and southern European countries to borrow and fund their deficits.

That ECB will go as far as necessary to fight against the inflation that should remain too high for a whilewarned on Tuesday the president of the institution, Christine Lagarde.

France has been relatively less affected than its European neighbors, with an inflation rate of 6.5% in June, the second-lowest rate in the euro zone behind Malta (6.1%), according to Eurostat’s Index of Consumer Prices (HICP).

Inflation in Germany reached 8.2%. The highest rates are recorded in the Baltic States: 22% in Estonia, 20.5% in Lithuania and 19% in Latvia, countries bordering Russia and particularly affected by the disruption in trade relations with Moscow.

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