Inflation in the euro area at a new record level

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The surge in energy prices as a result of the Ukraine war is driving inflation in the euro area to new record highs. More rate hikes are more likely.

In July, consumer prices climbed by 8.9 percent year-on-year compared to the same month last year, according to an initial estimate from the statistics office Eurostat. Economists, on the other hand, had expected an unchanged rate of 8.6 percent in June. Inflation was 8.1 percent in May and 7.4 percent in April.

The European Central Bank (ECB) is thus still clearly missing its inflation target. The currency watchdogs are aiming for two percent inflation as the ideal value for the economy in the 19-country community.

The euro watchdogs around central bank boss Christine Lagarde have already initiated the interest rate turnaround due to the massive surge in inflation. On Thursday a week ago, with their first rate hike in eleven years, they took an unexpectedly strong step against escalating inflation.

The euro watchdog raised the key interest rate by half a percentage point to 0.50 percent. The interest rate hike was therefore twice as high as originally planned. Some currency watchdogs believe further strong hikes are possible. The next interest rate meeting will take place on September 8th in Frankfurt.

Expensive energy

According to Eurostat, energy prices shot up 39.7 percent year-on-year in July, after a 42.0 percent increase in June. Unprocessed food prices increased by 11.0 percent, service prices increased by 3.7 percent. The three Baltic states again had the highest inflation rates in the currency area, at more than 20 percent.

Economy is growing faster than expected

Meanwhile, the economy in the euro zone is significantly stronger than expected in the spring grown. In the second quarter, the gross domestic product (GDP) of the 19 euro countries grew by 0.7 percent compared to the previous quarter, as the statistics office Eurostat also announced on Friday. Economists had expected an average of 0.2 percent. Compared to the corresponding period of the previous year, the economy in the euro zone grew by four percent.

The development was similar throughout the EU. Among the countries that have already published data, Spain recorded the strongest growth in the euro area. Here the economy grew by 1.1 percent compared to the previous quarter. In Italy, GDP increased by 1 percent and in France by 0.5 percent. The German economy, on the other hand, was disappointing with stagnation.

ul/dk (rtr, dpa)