Eurozone inflation hit yet another record high in June as price pressures mounted, and the peak could still be months away, bolstering the case for a rapid rate hike by the European Central Bank to from this month.
The annual rise in consumer prices in the 19 countries sharing the euro accelerated to 8.6% from 8.1%, Eurostat said on Friday (1), above expectations of 8.4% and mainly driven by prices. energy, as well as food and services.
Inflation has been rising steadily for over a year, initially fueled by post-pandemic supply shocks and now by energy prices in the wake of Russia’s war against Ukraine.
More than four times the ECB’s 2% target, inflation is so high that it runs the risk of staying at uncomfortable levels as companies and workers adjust their prices and wage behaviors to the new reality.
Even if volatile food and fuel prices are removed, core inflation remained well above the ECB’s target, a worrying reading for policymakers as it suggests perpetuating price growth through so-called second-round effects. .
Inflation excluding food and fuel accelerated from 4.4% to 4.6%, although an even narrower measure, which also excludes alcohol and tobacco, slowed from 3.8% to 3.7%
Fuel prices rose 41.9% in June, while food costs rose 11.1%, a particular concern for governments as lower-income households spend a disproportionate share of their money on these items.
Behind its peers for many months, the ECB will start raising rates this month, initially by 0.25 percentage point, but Friday’s data strengthens the case for a larger move of 0.50 percentage point in September.
Interest rates will then continue to rise, although officials disagree on how much more will be needed as growth slows and threats of gas supply cuts raise the prospect of a recession.
Source: CNN Brasil

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