(CN) — The European Union's inflation rate fell nearly two points in March, signaling recovery from last year’s record high prices and record deep trade deficit.
According to data published by Eurostat on Friday, annual inflation in the EU fell to 6.9% in March from 8.5% in February. Largely driven by rising costs of energy, inflation peaked at 10.6% this past October.
These rates track with the Winter Quarterly Economic Forecast, published by the European Commission in February, anticipating that inflation would drop from 9.2% to 6.4% over the rest of the year. The optimistic forecast hopes inflation will settle below 3% by 2024.
Friday’s report recorded the first decrease of energy costs since 2021 before Russia invaded Ukraine in 2022. Last month, annual energy inflation finally decreased by nearly 1%. In March 2022, annual energy costs were up by 44%.
All other categories increased with rising costs of food, alcohol and tobacco leading the way at 15%.
Latvia reported the highest annual inflation in March, 17.3%, a significant decrease from February’s 20% rate. Inflation in Slovakia and Estonia also topped 14%.
Tracking at 3%, Luxembourg and Spain reported the lowest annual inflation rates in March, followed by Belgium and the Netherlands which fell just below 5%.
Prior to Russia's invasion of Ukraine, the EU imported more than a quarter of its crude oil from Russia, along with 46% of solid fuel and 40% of natural gas needed.
In anticipation of Russia potentially cutting off energy supplies to the EU, member states agreed to reduce their energy use in the months leading up to winter. While the EU remains largely dependent on Russian oil, Eurostat tracked a dramatic 20% reduction in fossil fuel use this past fall.
Energy makes up a small portion of household spending, around 10%. Spending on services accounts for 44% of household consumption, followed by non-energy industrial goods at 26% and food, alcohol and tobacco at 20%.
While the EU reported record high inflation throughout 2022, high costs of energy also drove member states into their deepest trade deficit since 2002: 432 billion euros ($469 billion), according to data published Friday.
Due to the Covid-19 pandemic, the EU exported 9% fewer goods in 2020 compared to the previous year. Imports also dropped by nearly 12% that year.
Throughout 2022, imports from outside the EU rose 41% while exports increased 18%, setting two new records.
“The proportion of intra-EU and extra-EU flows in total trade in goods varied considerably, reflecting, to some degree, historical ties and geographical location,” the report explained.
Luxembourg conducts nearly 90% of its trade with other member states, while most of Ireland’s trade lies outside the EU. At 82%, Czechia reported exporting the highest percentage of its goods to other EU member states.
The United States and China are the EU’s greatest global trading partners. The U.S. leads in importing goods from Europe, while China leads exporting goods to the EU.
Looking at EU member states' global trade as a whole, Germany accounted for 28% of all exports, the highest percentage of them all. The Netherlands, Italy and France also conduct significant trade with the rest of the world.
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