Annual inflation in the eurozone's 19 countries hit 8.6% in June, surging past the 8.1% recorded in May, according to the latest numbers published Friday by the European Union statistics agency, Eurostat. Inflation is at its highest level since recordkeeping for the euro began in 1997.
Demand for energy has risen as the global economy bounced back from the depths of the COVID-19 pandemic and Russia's invasion of Ukraine made things worse.
European Union leaders agreed to ban most Russian oil imports by the year's end, driving a price spike. The 27-nation bloc wants to punish Moscow and reduce its reliance on Russian energy, but it's also adding to financial pain for people and businesses as utility bills and prices at the pump soar.
Russia also reduced deliveries of natural gas used to power industry and generate electricity last month to several EU countries like Germany, Italy and Austria, on top of cutting off gas to France, Poland, Bulgaria and others.
“Importantly, the oil embargo and gas supply squeeze that unfolded over the month of June have caused energy prices to soar,” ING Bank’s senior eurozone economist, Bert Colijn, wrote in a commentary.
Rising consumer prices are a problem worldwide, with the U.S. and Britain seeing inflation hit 40-year highs of 8.6% and 9.1%, respectively. That has led the U.S. Federal Reserve, Bank of England and other central banks worldwide to approve a series of interest rate hikes to combat inflation.
Colijn said the eurozone's latest “ugly inflation reading” adds pressure on the European Central Bank to act quickly.
The ECB is planning its first interest rate hike in 11 years this month, followed by another increase in September. Bank President Christine Lagarde said this week that she wants to move gradually to tackle soaring consumer prices, to avoid stifling the economic recovery, but is leaving the door open for bigger rate hikes in case inflation surges more than expected.
“I don’t think that we’re going to go back to that environment of low inflation," Lagarde said at an ECB forum Wednesday in Sintra, Portugal. “I think that there are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are facing now that are going to change the picture and the landscape within which we operate."
But central banks run the risk of causing a recession as they make borrowing more expensive.
Inflation in the euro area has been setting monthly records since last year, underscoring how the war's impact on global energy supplies is making life more expensive for 343 million people.
So-called core inflation was more stable after excluding the volatile energy and food categories. Price increases for goods like clothing, appliances, cars, computers and books held fairly steady at 4.3%, as did prices for services at 3.4%.
The EU data also showed countries neighboring Russia that have been trying to wean themselves off cheap Russian gas are bearing the brunt of rising prices. Annual inflation came in at 22% for Estonia, 20.5% for Lithuania and 19% for Latvia.
Poland, which does not use the euro but is an EU member, reported Friday that inflation rose to 15.6% in June compared with a year earlier, the highest rate in a quarter-century. That was an increase from the annual rate of 13.9% in May.
Analysts noted that the biggest rise in Poland was in gasoline and diesel prices, which went up 46.7% from a year ago. Food prices were up 14.1%.