Eurozone in trouble? Inflation hits all-time high of 8.9%
Eurozone in trouble? Inflation hits all-time high of 8.9%

Eurozone in trouble? Inflation hits all-time high of 8.9%

Countries using Euro as their currency are witnessing heightening inflation rates, as annual inflation in the Eurozone shot up by 8.9% in the month of July 2022.

Eurozone which is also known as Euro Area is a union of 19 nation states who have adopted the Euro as their primary currency. All the members of the eurozone are also members states of the European Union.

According to the numbers released by Eurostat, the current inflation rate of 8.9% is the highest in its history as inflation has been staying at 8.6 % for the last few months. In June 2022, the inflation in the euro area was 8.6% which was the highest rate of that time. The 8.9% figure posted by the Eurozone is well above the market expectation of 8.6% inflation.

Economics analysts are of the opinion that the existing geopolitical crisis between Russia and Ukraine coupled with the increased fuel and gas prices is heavily contributing towards the increasing inflationary numbers. The Russia Ukraine conflict led to heavily limited supply of energy to European Union which resulted in an increase in the prices of the gas and oil.

Consumer Price Index increased by 0.13 points while Core Inflation Rate shot up by 0.3 %.

Energy prices saw the highest increase as the prices grown by 39.7 %. Even though the number is slightly lower than the previous month, the continuing concerns and apprehensions regarding supply of gas from Russia and the repairing of the Nord Stream pipeline keep room for respite away for the energy sector. In the last month, the energy price inflation clocked at nearly 42%.

Apart from Energy prices, the prices of food, alcohol, and tobacco saw a heavy increase of 9.8% when compared to 8.9% in the month of June 2022. The increase in the prices of food is due to the continuing uncertainty regarding the supply of wheat from Ukraine. Apart from the supply, growing transportation costs, shortages, and recession fears are also adding to the inflationary tendency in the prices of food.

Even though there is an issue of inflation in eurozone markets, the GDP growth numbers of the economies in the euro area provide little relief.

The growth in GDP numbers of major economies such as Spain, France, and Italy was due to the increasing demand for tourism services and the upside demand owing to the reopening of the domestic economies after the Covid-19 pandemic.

Economists suggested that if inflation continues to pick up and rise above expected levels, the European Central Bank would be forced to take monetary measures such as hiking interest rates to put a hold on the inflation.

Such a measure would lead to decreased economic activity, and that coupled with increasing fuel costs would push the European economy closer to a recession scenario.