Eurozone inflation hits record 8.1% amid rising energy costs

Eurozone inflation hit a record 8.1% in May amid surging energy and food costs fuelled in part by Russia’s war in Ukraine.

Annual inflation in the 19 countries that use the euro currency soared past the previous record of 7.4% reached in March and April, according to the latest numbers published on Tuesday by the European Union statistics agency, Eurostat.

Inflation in the eurozone is now at its highest level since recordkeeping for the euro began in 1997.

Soaring prices are weighing on household finances and making it more urgent for officials to act quickly to head off further increases in the cost of living.

Energy prices jumped 39.2%, highlighting how the war and the accompanying global energy crunch are making life more expensive for the eurozone’s 343 million people.

“Energy inflation is likely to remain higher for longer than previously expected,” after the European Union agreed to embargo most Russian oil imports by the year’s end, said Andrew Kenningham, chief European economist at Capital Economics.

Brent crude oil, the international standard, rose to 120 dollars a barrel after the agreement.

Aimed at punishing Moscow for its war with Ukraine, the deal is a double-edged sword that could also magnify the pain for people and businesses already struggling to cope with higher energy costs.

Oil and natural gas prices had already spiked over fears the war would interrupt supplies from Russia, the world’s largest oil exporter.

Strong global demand following the Covid-19 pandemic and a cautious approach to increasing production from oil cartel Opec have lifted energy prices.

Countries neighbouring Russia that have been weaning themselves off Russian gas were among the hardest hit. Estonia’s inflation rate reached 20% while in Lithuania it was 18.5% and in Latvia it came to 16.4%.

Food, alcohol and tobacco prices rose 7.5% in May, Eurostat said — another sign of how Russia’s war in Ukraine, a major global supplier of wheat and other agricultural commodities, is pushing up prices around the world.

Prices for goods like clothing, appliances, cars, computers and books rose 4.2%. Prices for services increased 3.5%.

Inflation is also a problem in other advanced economies like Britain and the US, where it is at the highest level in four decades.

In Poland, which does not use the euro, annual inflation in May jumped to a 24-year high of 13.9%, the state statistical office said on Tuesday.

Higher fuel and food prices were the main drivers amid an economic boom prompted by the huge influx of Ukrainian refugees contributing to consumer demand.

The latest figures add pressure on eurozone officials to raise interest rates from ultralow levels to rein in the rising prices, though that risks stifling economic recovery.

The European Union earlier this month slashed its economic growth forecast for the 27-nation bloc amid the prospect of a drawn-out Russian-Ukraine war and extended disruptions to energy supplies.

The president of the European Central Bank, Christine Lagarde, last week gave the clearest sign yet that rates will start rising soon, writing on a blog that she expects to “exit negative interest rates by the end of the third quarter”.