Eurozone inflation hits record high of 8.6 percent in June

EuroActiv Politico News

FRANKFURT – Eurozone inflation surged to a record high of 8.6 percent in June, racing ahead of expectations once again and adding pressure on the European Central Bank to tighten policy, Eurostat data showed Friday.

A Reuters poll of analysts had pointed to a record 8.4 percent jump in June, up from 8.1 percent in May.

Scorching inflation continues to be primarily driven by energy prices, which were up 41.9 percent in June compared with 39.1 percent in May. That’s followed by food, alcohol and tobacco prices, which were up 8.9 percent in June compared with 7.5 percent in the previous month.

Core inflation, which strips out volatile components and is seen as a good indicator for underlying price pressures, eased slightly to 3.7 percent in June from 3.8 percent in May.

Among member states, the Baltics remain the hardest hit, with inflation hitting 22 percent in Estonia, 20.5 percent in Lithuania and 19 percent in Latvia. The lowest inflation rates were recorded in Malta (6.1 percent) and France (6.5 percent).

The reading’s upside surprise may may ratchet up ECB rate hike expectations. It has signaled that it will raise interest rates by 25 basis points in July, followed by another possibly larger move in September.

Earlier this week, ECB President Christine Lagarde floated the chance of a bolder move, pointing to “the option to act decisively on any deterioration in medium-term inflation.” Some of her more hawkish Governing Council members from the Baltics suggest that this option should be put on the table already for July.