Inflation in Europe is displaying a multi-directional pattern, as per the latest data, with certain countries in the Eurozone witnessing rising inflation rates while others experience a cooling off, analyzed on an annual basis.
Official figures released on Thursday indicate a contrasting inflation landscape within the Eurozone, with Germany experiencing a rise in inflation while Spain witnesses a decline. Overall, the Eurozone trend points towards a cooling down of inflationary pressures.
According to Germany’s state statistics office Destatis, consumer prices in June rose by 6.8% compared to the previous year, surpassing May’s increase of 6.3%. Analysts attribute this higher figure, in part, to the impact of heavily discounted transportation tickets that were widely available last summer.
While other economies in the Eurozone experienced significant decreases in their annual inflation rates, Germany, the largest economy in the Eurozone, saw an increase in its inflation rates.
The statistical office of the European Commission reported that consumer prices in the 20 eurozone countries increased at an annual rate of 5.5 percent in June, marking a decrease from May’s 6.1 per cent.
Central bankers will likely be particularly concerned about the rise in core inflation, which excludes the volatile categories of food and energy and provides a more reliable measure of underlying price pressures. In the year through June, core inflation reached 5.4 percent, up from 5.3 per cent in May.
More rate hikes could harm the Eurozone economy
Over the past 12 months, the Eurozone has experienced one of the most severe economic downturns in recent history. The Russian conflict in Ukraine and the resulting energy crisis have thrown Europe into disarray, leading to high inflation in the region’s economies. As inflation-adjusted wages declined and central banks implemented interest rate hikes, the European economies suffered significant hardships.
In October, inflation in the eurozone reached its highest point at 10.6 per cent. Since then, price increases have been gradually slowing down as energy prices cooled off. However, despite the anticipated decrease in inflation, the rate remains significantly above the central bank’s target of 2 per cent.
To address this, policymakers have raised interest rates, resulting in a deposit rate of 3.5 per cent in June, the highest level in 22 years. Before the rate hikes implemented last year, the European Central Bank’s key policy rate stood at a negative 0.5 percent.
Several analysts have expressed concerns that further interest rate hikes could significantly harm the economy of the eurozone. Despite expectations of worsening conditions due to rising inflation and higher interest rates, the eurozone economies have managed to avoid severe erosion thus far.
However, it is crucial to consider the potential consequences of continued interest rate hikes, as they may push the economy toward a recession and have a detrimental impact on the European economy.
In the first quarter of 2023, Germany, the largest economy in the eurozone, technically fell into recession, diverging from the economic performance of the rest of Europe. According to the seasonally adjusted data provided by the national statistics institute, Destatis, Germany met the technical definition of a recession, with two consecutive quarters of economic contraction.
