Friday, September 30

Inflation in the eurozone reaches the historical record of 8.9% in July

Inflation in the eurozone reached 8.9% in July, after the 8.6% recorded in June. The CPI (Consumer Price Index) of the euro countries as a whole climbed to a maximum since it was calculated, with Spain among the economies that suffered the greatest increase in prices, of 10.8%, always compared to the same month from last year.

Spain almost doubled the economic growth of the eurozone in the second quarter

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Throughout the European Union (EU), the year-on-year inflation rate for July also reached a new all-time high of 9.8%, two tenths above the June reading.

More than half of the EU countries support an increase in prices above 10% and with a sharp rise in food -11.1% in the eurozone in July according to Eurostat data, after 11.2 % of June—, which has a direct impact on the poorest households, who spend a greater part of their income on the supermarket and on energy—both are basic needs whose consumption can hardly be reduced—.

The latter, for its part, is the main factor that has intensified this crisis due to the impact of the Russian invasion of Ukraine, and continues to be the one that contributes the most to it (it is directly responsible for just over 4 points).

The highest levels of inflation have been observed in Estonia (23.2%), Latvia (21.3%) and Lithuania (20.9%), while the least intense increases in prices were registered in France, Malta ( both 6.8%) and Finland (8%). Spain comes out eighth in this classification.

Excluding the impact of energy from the calculation, the year-on-year inflation rate in the euro area stood at 5.4% in July, compared to 4.9% in the previous month, while also excluding the effect of prices of fresh food, alcohol and tobacco, the core inflation rate has reached a record 4%, three tenths more than in June.

Food, alcohol and tobacco had never contributed so much to the general CPI in the eurozone, just over 2 points in July, according to Eurostat.

Inflationary pressure in the eurozone and the EU was in July below that registered in the United Kingdom, where prices rose by 10.1%, after the 9.4% rise in June, but it exceeded that in the United States, where inflation moderated to 8.5%, six tenths below the 9.1% observed in June.

The rise of the supermarket

In Spain, cereals suffered a rise of 20.4%, in this case according to the INE. With the price of bread 14.7% higher this July than in the same month of 2021. Beef rose 14.5%, poultry up 16.3%, and eggs 22.5 %. The advance of oils and fats was 28.6%, that of milk 22.6% and that of fresh fruits 15.1%.

The only good news is that transport prices fell three points compared to June data, to 16.2%, due to the drop in fuel prices.

This relaxation has occurred coinciding with the uncertainty about a fall in demand in the coming months due to the risk of recession and with the decision of the Organization of Petroleum Exporting Countries (OPEC) and other countries such as Russia to increase crude oil production in 100,000 barrels per day since September.

Even so, the price of fuel remains especially high. It can be seen in the comparison with the summer of 2021. Taking into account the discount of 20 cents from the Government, the price of a liter of gasoline is currently about 15% more expensive than at the beginning of August last year, while in the case of diesel is 30% higher.

More persistence of inflation

Core inflation (excluding unprocessed food and energy products) increased in July in our country six tenths, to 6.1%, at the highest rate since January 1993, which indicates a greater persistence of price increases in this crisis. The latest forecast from the European Commission points to an average increase in the CPI in 2022 of 8.1%, close to the estimate of 8.3% for the European Union (EU) as a whole.

“The most likely scenario is a slowdown in the CPI in the coming months, especially in the fourth quarter, with a greater emphasis on 2023. Unfortunately, what happens continues to depend largely on factors beyond our control”, regrets Eduardo Miranda Sancho, economic analyst at Ibercaja.

The data is alarming and makes the package of measures with which the Government has responded to this energy crisis and inflation in general insufficient. Last Friday, the Minister of Industry, Commerce and Tourism, Reyes Maroto, stated that the Executive trusts that the CPI “will begin to lower the curve” as of September, while indicating that, if they had not been adopted measures, inflation would have risen 3.5 points more.

Focus aid on the poorest

The European Central Bank (ECB) recently gave another wake-up call to the countries sharing the euro about the response. After asking for wage increases to offset inflation and not increase the risk of mortgage default, the central bank now indicates that only 12% of the fiscal measures adopted to cushion increases in energy prices in 2022 are destined for poorest families. And barely “1% contribute to the green transition,” he concludes. While 54% encourage the consumption of fossil fuels.

“Looking forward, if additional public support is required, financial resources should be used efficiently,” concludes the institution chaired by Christine Lagarde in a recent report, in which it considers that “efforts should be intensified to that compensatory measures related to energy are increasingly targeted at the most vulnerable households”.

“In addition, incentives should be directed at reducing the use of fossil fuels and energy dependence on Russia, while maintaining sound public finances,” he continues.

This warning coincides with that made, also in recent days, by the International Monetary Fund (IMF), which recommended that European countries abandon policies aimed at subsidizing the cost of energy at a general level (with measures such as discounts to fuel or tax cuts) in exchange for focusing on helping only the poorest.

They are calls for attention that critical economists have been repeating for months, who have demanded and demand, as the ECB and the IMF have done, that vulnerable groups be attended to and action be taken with a medium-term vision.