The rate of inflation in European Union countries that have the euro as their currency reached a record in July, driven by the increase in energy prices, motivated in part by the Russian war in Ukraine. All in all, the economy registered meager growth, but higher than expected.
Annual inflation in the eurozone, made up of 19 of the bloc’s 27 nations, rose to 8.9% in July from 8.6% the previous month, according to the latest data released Friday by the community statistics agency.
Inflation is at its highest level since 1997, when records began for the euro. For this reason, last week the European Central Bank raised interest rates for the first time in 11 years and anticipated a new increase in September.
Fuel prices increased 39.7% in July, slightly less than the previous month, due to concerns about gas supplies. Prices of food, alcohol and tobacco rose 9.8%, more than the previous month, due to rising transport costs, shortages and uncertainty about supply from Ukraine.
“An ugly new July inflation figure,” said Bert Colijn, senior eurozone economist at ING bank. “There is no imminent sign of relief,” he added.
Meanwhile, the eurozone economy grew 0.7% in the April-June quarter compared to the previous quarter, despite stagnation in Germany, traditionally Europe’s economic engine. France staved off recession fears with modest 0.5% growth, while Italy and Spain beat expectations with 1% and 1.1% growth, respectively.
Economists highlighted the rebound in tourism following the COVID-19 pandemic, with travel chaos due to staff shortages at airports and airlines.
With inflation continuing to rise higher than forecast, analysts predict that economic growth will be the last bit of good news, as rising prices and interest rates coupled with a worsening energy crisis are likely to lead to to recession in the coming months.
“This will probably be the best the eurozone can hope for for the foreseeable future,” Andrew Kenningham, chief Europe economist at Capital Economics, wrote in a research note.
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