Inflation in the euro area rose to 8.6% in June, according to an initial estimate from the EU’s statistical office Eurostat.
Its estimate for inflation in Ireland was 9.6%, which is higher than many forecasters had predicted.
Statistics Sweden will publish detailed inflation figures later this month.
If you look at the components of the rapid HICP in Ireland for June 2022, energy is expected to increase by 6.2% during the month and by 54% since June last year.
Energy is still the biggest contributor to inflation in the euro area, with energy prices estimated to have risen by 41.9% on an annual basis. This can be compared with an annual rate of 39.1% in May.
Food prices are estimated to have risen by 8.9%, up from 7.5% in May.
When food and energy prices are removed, core inflation is estimated to have risen by 3.7%.
Eurostat figures are based on the Harmonized Index of Consumer Prices (HICP), which makes it possible to compare the rate of inflation between European economies.
Over the past six months, the HICP has either matched the official measure of inflation in Ireland known as the Consumer Price Index (CPI) or fluctuated by upwards of half a percentage point above the CPI.
The HICP differs from the CPI in how housing costs and certain insurance services are measured.
Today’s figures confirm the arguments for rapid interest rate hikes from the European Central Bank starting this month.
The inflation reading in the euro area was higher than expected at 8.4% and was mainly driven by energy prices, although food and services also made a significant contribution.
Inflation has been rising steadily for more than a year now, initially fueled by post-pandemic supply shocks and now by energy prices following Russia’s war on Ukraine.
With more than four times the ECB’s target of 2%, inflation is so high that it risks getting stuck at uncomfortable levels as companies and workers adjust their pricing and wage behavior to the new reality.
Although volatile food and fuel prices are filtered out, “core inflation” remained well above the ECB’s target, which is disturbing for decision-makers as it suggests that price growth is sustained through so-called other round effects.
Inflation in June would have been even higher, analysts say, if Germany had not introduced temporary relief for fuel and transport, which supports the arguments that further price pressure is still in the pipeline.
To increase inflationary pressures, unemployment fell to a record low of 6.6% in May, and with the obvious shortage of labor paralyzing parts of the service sector, employment growth could continue, pushing up wages and ultimately inflation.
With a new “inflation regime” that threatens price stability in the longer term, central banks around the world are now sharpening their policies rapidly, even at the cost of slowing down growth or even crashing.
After lagging behind its competitors for many months, the ECB will also start raising interest rates this month, initially by 25 basis points, but today’s data strengthens the arguments for a larger movement of 50 basis points in September.
Interest rates will then continue to rise, although politicians disagree on how much more will be needed when growth slows and threats of cuts in gas supplies increase the prospects for a recession.
The markets price a total of 143 interest rate increases at the end of the year, which indicates that increases are expected at each policy meeting during the rest of the year, with several of these exceeding 25 points.
The ECB’s deposit rate has been -0.5% since 2014 in negative territory.
In an issue that coincides with Eurostat’s “flash” estimate of inflation, the CSO has noted that energy prices in Ireland rose by 6.2% in June and by 54% on an annual basis.
This compares with a monthly increase in euro area energy prices of 3.3% and an annual increase of 41.9%.
The CSO, which prepares statistics published by Eurostat, also noted that eight of the 19 euro area countries had an annual inflation rate lower than Ireland’s estimate of 9.6%, while there were ten countries with higher annual rates.
The lowest inflation in the euro area was in Malta at 6.1% while Estonia had the highest at 22%.
Additional reporting from Reuters
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