Eurozone Inflation Jumps To Record 8.1%
These are turbulent days for Eurozone households as inflation hits a new record yet again.

- Energy prices rise nearly 40% from May 2021

- Brent surges as EU preps Russian oil embargo

- Core inflation hits new record

- Rampant consumer price growth pressures ECB

 

By Eric Culp

LiveSquawk News

@EricCulpLS

 

 

31 May 2022 | 09:50 GMT

 

Consumer price growth in the Eurozone crossed yet another important psychological mark in May as the headline rate pushed past 8% for the first time in the history of the single currency area.

 

The EU statistics office Eurostat said its preliminary reading for annual inflation in the euro area jumped to a record 8.1% this month. This was well above the market estimate of 7.7% and the previous record of 7.4% announced in both March and April.

 

Eurostat said core inflation in the currency area rose to a record 3.8%, which was beyond the market estimate of 3.5%, the former high set last month.

 

The European Central Bank’s inflation target is 2% over the medium term.

 

Eurozone energy prices skyrocketed 39.2% from a year ago versus the 37.5% increase last month, the office said. Services were up 3.5% from May 2021.

 

Brent crude and WTI are both up over 75% since this time last year, and on Tuesday morning the former was trading near its March high for the 2022 after the EU said it would ban 90% of Russian oil shipments by year’s end.

 

The latest spike in oil prices suggests that high levels of consumer price growth could continue for months to come.

 

“We think headline inflation will peak in Q2 but will slow only gradually throughout 2022,” wrote Riccardo Marcelli Fabiani from Oxford Economics. “However, the latest news of the EU agreement on a ban on Russian oil and the related climb in the Brent price mean that risks are skewed once again to the upside.”

 

The May readings were just the latest in a long line of unexpectedly high increases in Eurozone inflation, causing at least one analyst to wonder if the ECB could hike rates as early as next week. “Oh dear ... upside surprise in both core and headline EZ inflation,” tweeted Claus Vitesen, chief Eurozone economist at Pantheon Economics. “Is next week live, could they really go 50bp? It’s time for ECB forecasters to earn their wage, or die trying.”

 

Before Tuesday’s inflation announcement, economists had widely predicted that Eurozone central bankers responsible would wait until July to initiate a hike cycle.

 

Capital Economics predicted that the policymakers would stick to that timetable. “With headline and core inflation rising more than expected yet again, the case for exiting from negative interest rates promptly is now irrefutable. The ECB looks sure to confirm next week that it will raise rates in July, and we suspect that it will leave the door open to a 50bp hike.”

 

National rates soar

Preliminary annual inflation in the Eurozone’s four largest countries increased across the board in May, with some of the major economies reporting dizzying jumps in consumer prices. Italian inflation, published concurrently with the euro area numbers, soared to a EU harmonised rate of 7.3% to outpace the market forecast of 6.7% and come in a percentage point higher than last month’s rate of 6.3%.

 

French harmonised inflation announced Tuesday morning rose to 5.8%, which beat both the 5.6% estimate and the 5.4% rate in April.

 

On Monday, Germany – the Eurozone’s largest economy – said EU harmonised inflation this month had surged to an annual rate of 8.7%, which was up nearly a percentage point from the 7.8% mark in April and far above the estimate of 8.0%. The country’s own measure of inflation was the highest in almost half a century.

 

Also Monday, Spain said its annual EU harmonised consumer price growth increased to 8.5% from 8.3%.

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