Inflation in the eurozone sets a new record and reaches 8.6% in June

Inflation in the eurozone has climbed another five tenths in June and has stood at 8.6% in annual rate, according to data published this Tuesday by the EU statistical office, Eurostat.

June has thus become the month with the highest year-on-year inflation so far this year, after the increase in prices was 5.1% in January, 5.9% in February, 7.4% in March and April and 8.1% in May.

A year earlier, in 2021, the inflation rate in June was 1.9%.

Year-on-year inflation in the European Union at 27 reached 9.6% in June 2022, compared to 8.8% in May. In 2021, the rate was 2.2%.

The lowest rates were recorded in Malta (6.1%), France (6.5%) and Finland (8.1%). By contrast, the highest rates were recorded in Estonia (22%), Lithuania (20.5%) and Latvia (19.2%). Spain registered 10.2%.

Compared to May, annual inflation fell in two Member States and increased in 25. In June, the largest contribution to the euro area annual inflation rate came from energy (+4.19 percentage points), followed by food, alcohol and tobacco (+1.88 points), services (+1.42 points) and non-energy industrial goods (+1.15 pages).

euro area annual #inflation up to 8.6% in June

— EU_Eurostat (@EU_Eurostat) July 19, 2022

However, core inflation, which excludes energy, alcohol, tobacco and fresh food due to more volatile prices, stood at 3.7% last month, which represents a decrease of one tenth compared to the Month of May.

Energy repeated in the sixth month of the year as the main factor in the increase in prices, with an annual growth rate of 42%, which represents an increase of more than two points compared to the previous month.

For its part, the price of processed foods, alcohol and tobacco increased by 8.2% in June (compared to 7% in May), while that of unprocessed foods increased by more than two points, from 9% in May to 11.2% last month.

On the verge of a rate hike

This Thursday the European Central Bank will raise interest rates by a quarter of a point, which could become a half-point rise at the turn of summer. What the ECB is pursuing is trying to puncture the rise in prices, even if it is at the cost of cooling down the economic recovery already threatened by the war.

The fundamental mandate of the European Central Bank, based in Frankfurt, is that inflation remains close to 2%, but without exceeding it. And a few months of high prices, mainly due to the energy crisis, aggravated by the Russian invasion of Ukraine, have been enough for the ECB to announce a rise in interest rates –the first in 11 years–, after the US Federal Reserve and the Bank of England.

Inflation is the worst of the economic ghosts in Germany, the main economy of the EU, the country where the ECB is based and the country whose Constitutional Court closely marks the entity chaired by Christine Lagarde in the face of what is sometimes considered excesses of the monetary mandate of the European Central Bank –ultra vires, in Karlsruhe terms–.

The decision to raise rates to discourage consumption while encouraging savings in order to lower inflation, will come this Thursday hand in hand with another key decision: the end of the public debt purchase program launched at the beginning of the pandemic to reduce the pressure on the States' ability to maneuver to respond to the coronavirus crisis, with the tap on public spending open in Brussels.

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