Inflation in Europe has taken a positive turn with a significant drop to 6.1%, but prices continue to weigh on shoppers who do not yet see any real relief in what they pay for food and other essential products. | Photo credit: AP
Inflation in Europe has taken a positive turn with a significant drop to 6.1%, but prices continue to weigh on shoppers who do not yet see any real relief in what they pay for food and other essential products.
The annual figure in May fell by 7% in April for the 20 countries that use the euro, the European Union’s statistical agency Eurostat said on June 1.
It was a welcome sign that the explosion in price increases – which peaked in double digits last October – is headed in the right direction.
But economists have warned it will be many months before disgruntled consumers see more normal levels of inflation reflected in price tags in stores. As prices rise more slowly, they add to the already high costs caused by Russia’s war in Ukraine and other factors.
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The relief is a long way off for people like Brigitte Weinbeck, 76, who was shopping this week at an open-air market in Cologne, Germany.
“I shop more consciously – for example, I always make a plan at the beginning of the week about what I’m going to cook and when and then I’m going to shop,” she said. “Otherwise, you sometimes make impulse purchases.”
The food bank at St. Wilhelm’s Roman Catholic Church in Berlin, meanwhile, has grown from 100 to 120 households before the war in Ukraine to 200.
“Now there are people coming in who are at the limit of their income,” said coordinator Christine Klar. “They say the prices have gone up so much now. And now they know, or have heard, that they have the right to use the food bank, so now they come. Food prices in the Eurozone (EA) rose 12.5% in May from a year earlier, but still declined from the 13.5% increase recorded in April.
Energy prices, which fell 1.7% from a year ago after rising 2.4% a month ago, played a key role in lowering headline inflation .
Core inflation, which excludes volatile food and energy, fell to 5.3% from 5.6% in April. This figure is considered the best indication of price pressures in the economy due to demand for goods and rising wages. It is high enough for the European Central Bank to approve another interest rate hike at its June 15 meeting.
Inflation fell in the three largest economies where the euro is used: Germany at 6.1%, France at 5.1% and Italy at 7.6%. The decline was “broad-based, with food, energy and core inflation all contributing to the easing,” economist Rory Fennessy wrote at Oxford Economics.
Inflation took off in mid-2021 as fears of Russia invading Ukraine drove up natural gas and oil prices over fears of losing Russian supplies and as the global economy rebounded after the worst of the pandemic, straining the supply of parts and materials.
Energy and supply bottlenecks have eased, but rising prices have continued to ripple through the economy as workers demand better wages and companies find they can raise prices. price to cover increased costs.
“Headline inflation is declining rapidly, driven by factors such as lower energy prices and large base effects from 2022. In this context, it is important to bear in mind that the general price level continues to rise from an already high level,” according to economists at Banque SEB.
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“Consumers will continue to struggle, although central banks will find it a little easier at the end of 2023 from an inflation targeting perspective,” they wrote.
Germany, whose economy has contracted for two consecutive quarters that mark a definition of recession, has tried to cushion the blow of high energy prices with subsidies for households and businesses and tickets discounted public transport. Part of this has helped reduce the energy boosts drastically, but the food continues to increase.
Rising energy and food prices have been major challenges for the European economy, as consumers are forced to spend more on basic necessities and have less to spend on everything else.
The eurozone dodged recession in the early months of the year, largely thanks to efforts by governments to align non-Russian natural gas sources to avert an energy catastrophe. The economy grew only 0.1% in the first three months of the year.
Rapid interest rate hikes by the European Central Bank are also weighing on economic growth as it attempts to bring inflation back towards its target rate of 2%.
Higher interest rates influence the cost of borrowing across the economy, making it more expensive to get a mortgage to buy a home or a business investment loan, which reduces the demand for goods which drives up inflation.