Inflation soars near double digits in EU

(CN) — Inflation continued to rise across the European Union through June, averaging a wallet-busting 9.6% according to data published by Eurostat on Tuesday.

This marks the highest inflation rate since record keeping began in 1997. This year’s first record-breaking rate occurred in January, 5.6%, a benchmark which has been defeated each month since.

This time last year, EU inflation averaged just 2.2%. Since then energy costs have risen more than 42%, pulling all other sectors of the economy along for the ride. Taking energy out of the equation, inflation would fall just below 5% for processed and unprocessed food, as well as alcohol and tobacco.

Energy only makes up about10% of household spending in the EU, with 40% going to services and 20% to food, alcohol and tobacco. Still, Europe relies heavily on the oil and gas that flows between Russia and Ukraine. The EU imports more than a quarter of its crude oil from Russia, along with 46% of its solid fuel and 40% of natural gas.

While EU member states set a goal of cutting demand for imported Russian fossil fuel by two-thirds within the year, this move is expected to further drive up short-term costs.

As of June, Malta marked the lowest inflation rate in the EU at 6.1%, followed by France (6.5%) and Finland (8.1%). At the opposite end of the spectrum, Estonia reported the highest inflation rate among member states at 22%, followed by Lithuania (20.5%) and Latvia (19.2%).

Inflation dipped slightly between May and June in Germany and the Netherlands, but increased across all other member states.

In the summer economic forecast published last week, the EU anticipated quarterly inflation peaking around 8.3% and declining to 4.6% by next year. The report attributed cost hikes to a combination of the Russia-Ukraine War, the slowing of the U.S. economy and China’s strict Covid-19 precautions.

“Russia's invasion of Ukraine has put additional upward pressures on energy and food commodity prices. These are feeding global inflationary pressures, eroding the purchasing power of households and triggering a faster monetary policy response than previously assumed. Ongoing deceleration of growth in the U.S. is adding to the negative economic impact of China's strict zero-Covid policy,” the report explained.

Inflation is one of several factors the EU uses to measure economic recovery from the Covid pandemic. Positive indicators range from an increase in production, including a rebound in construction production, to a decline in excess mortality — a euphemism for the number of deaths above historical trends.

Excess mortality remains just 6.6% above the EU's pre-pandemic average, down from the most recent peak of 26.4% during the delta surge this past fall.

European economists say the future of the economy remains largely tethered to the behavior of the highly transmissible SARS-Cov-2 virus which causes the disease Covid-19.

“Covid-19 remains a significant risk,” said Paolo Gentiloni, the EU’s economic commissioner in a statement. “The possibility that the resurgence of the pandemic in the EU would bring renewed disruptions to the economy cannot be excluded — despite the fact that at this time we don't have measures going in this direction.”

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