Eurozone inflation hit a new high in May, hitting 8.1%

Eurozone inflation hit a record 8.1% in May, amid soaring energy and food prices fueled in part by Russia’s war in Ukraine.

Annual inflation in the 19 countries that use the euro has surpassed the previous record of 7.4% reached in March and April, according to the latest figures published on Tuesday by the European Union’s statistics agency, Eurostat.

Inflation in the euro zone is now at its highest level since record keeping for the euro began in 1997.

Soaring prices are straining household finances and making it more urgent for authorities to act quickly to avoid further increases in the cost of living.

Energy prices jumped 39.2%, underscoring how the war and the accompanying global energy crisis are making life more expensive for the eurozone’s 343 million people.

“Energy inflation is likely to stay higher for longer than expected” after the European Union agreed to embargo most Russian oil imports by the end of the year, said Andrew Kenningham, economist in Head for Europe at Capital Economics.

Brent crude oil, the international standard, rose to US$120 a barrel after the deal. Aimed to punish Moscow for its war on Ukraine, the embargo deal is a double-edged sword that could also cause pain for people and businesses already struggling to cope with higher energy costs.

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Oil and natural gas prices had also soared over fears the war would cut off supplies from Russia, the world’s biggest oil exporter. Strong global demand in the wake of the COVID-19 pandemic and a cautious approach to increasing production by the OPEC oil cartel have driven energy prices higher.

Countries neighboring Russia that have weaned off Russian gas have been among the hardest hit. The inflation rate in Estonia reached 20%, while in Lithuania it was 18.5% and in Latvia it was 16.4%.

Food, alcohol and tobacco prices rose 7.5% in May, according to Eurostat – another sign of how Russia’s war in Ukraine, a major global supplier of wheat and other agricultural products, drives up prices around the world. Prices for goods such as clothing, appliances, cars, computers and books rose 4.2%. Service prices increased by 3.5%.

Inflation is also a problem in other major economies, such as Britain and the United States, where it is at its highest level in four decades.

In Poland, which does not use the euro, annual inflation in May jumped to 13.9%, its highest level in 24 years, the national statistics office announced on Tuesday. Rising fuel and food prices were the main driver of an economic boom caused by the huge influx of Ukrainian refugees contributing to consumer demand.

The latest figures are increasing pressure on eurozone officials to raise interest rates to ultra-low levels to rein in rising prices, although that risks stifling economic recovery. Earlier this month, the European Union cut its economic growth forecast for the 27-nation bloc amid the prospect of a protracted Russian-Ukrainian war and prolonged energy supply disruptions.

Last week, European Central Bank President Christine Lagarde gave the clearest sign yet that rates will start to rise soon, writing on a blog that she expects to “get rates out of negative interest by the end of the third quarter”.