Record energy prices drove the inflation rate across the countries using the common European currency to 8.6 percent in June, as the fallout of the war in Ukraine and the economic conflict it has sparked between Russia and Western Europe continued to bite.
Nearly half of the 19 countries in the eurozone have now reached double-digit inflation, figures released Friday by Eurostat, the European Union’s statistics agency showed. The overall rate was the latest record high since the creation of the euro in 1999.
Many of the countries have depended heavily on Russia as a source of fossil fuels to run their economies and heat their homes. But the amount of energy, especially natural gas, flowing to Europe from Russia has been largely reduced by more than half since Russia’s invasion of Ukraine on Feb. 24, driving prices to record levels and leaving European governments scrambling for a solution.
The fresh data will bolster plans by the European Central Bank to raise rates for the first time in more than a decade at its meeting in three weeks, and to increase them further later in the year, amid concerns that the risk of persistently high inflation outweighs a slowing economic growth outlook.
Because of the countries in the eurozone all have different economies, the situation in each one varies. While inflation in Germany and the Netherlands dipped slightly in June, Spain set a record, hitting double digits for the first time since 1985. For the three Baltic States in northeast Europe — Latvia, Lithuania and Estonia — prices that high have been a reality for months.
Estonia recorded an annual inflation rate of 22 percent, the highest in the eurozone, followed by its neighbors on the Baltic Sea, Latvia (19 percent) and Lithuania (20.5 percent). The three countries lack any domestic energy sources and their efforts to replace Russian energy have left them exposed to the exorbitant prices on the spot markets.
By contrast to the Baltics, France has a diversity of energy sources, which has helped keep its inflation rate comparatively low, at 6.5 percent in June. Although several nuclear reactors have been taken offline recently, the country is overall less reliant on fossil fuels which has shielded it from the worst of the fallout from Russia’s war in Ukraine.
For the first time since 1985, the inflation rate in Spain soared into the double-digits, hitting 10 percent in June. The high price of energy is largely to blame, along with increases in the price of food. The government in Madrid passed a €9 billion euro ($9.45 billion) relief package, including subsidies for transport and a 80 percent reduction in taxes on energy, to help vulnerable households cope.
Germany saw its inflation dip in June, down to 8.2 percent from 8.7 percent the month before. Analysts pointed to government programs, including one encouraging use of public transit with a €9 monthly pass and a cut in the country’s notorious high tax on energy, as reasons for the dip, but do not see the movement as a trend.
“In our opinion, there are still no compelling signs for the strong upward inflation spiral to lose steam any time soon” Deutsche Bank said in a research note, blaming persistent supply bottlenecks and energy price pressures.