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Eurozone inflation sets another record, hitting 10 percent in September

Month after painful month, rising energy prices are taking an ever-increasing toll on the standard of living of millions of Europeans.

The European Commission reported on Friday that consumer prices in countries that use the euro as their currency rose at an annual rate of 10 percent in September, again reaching the highest level since the euro’s creation more than two decades ago.

The double-digit pace was a big jump from 9.1 percent in August, the previous record.

The figures are just the latest evidence of how Russia’s invasion of Ukraine, which once provided most of Europe’s energy, is undermining economic growth, sowing anxiety and draining government resources in Europe more severely than ever before. in the United States and many other regions.

Energy prices, which rose at an annual rate of 40.8 percent in the eurozone in September, were the main contributor to accelerating inflation, pushed higher by Russia’s invasion of Ukraine. Food prices rose 11.8 percent in September, up from 10.6 percent in August.

Of the 19 eurozone countries, 10 posted double-digit headline inflation, including the largest economy, Germany, which published its own inflation result the day before: 10.9 percent. That was the highest rate of inflation Germany had seen since 1951, long before the reunification of the former East and West. On Thursday, the German government announced subsidies worth 200 billion euros ($195 billion) to cushion the blow of rising energy bills for homes and businesses, including by capping natural gas prices.

Estonia, Lithuania and Latvia recorded inflation rates above 22 percent. The reason, said Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, is that rising wholesale energy prices have been reflected in the retail prices households pay. The Netherlands, at 17.1% in September, down from 14% the previous month, and Slovakia, at 13.6%, were also in the unlucky group of countries with above-average rates.

In France, where the government has moved aggressively to cap energy prices, inflation eased somewhat, falling to 6.2 percent in September from 6.6 percent the previous month. Energy inflation slowed there, but food inflation rose. Still, thousands of people took to the streets across the country Thursday to demand higher wages to tackle inflation.

“Inflation is also higher in non-energy industrial goods and services, in particular,” said Lucrezia Reichlin, an economics professor at the London Business School and a former director of research at the European Central Bank. “This is an indication that the energetic shock is having a broader effect on all other elements.”

Excluding food and energy, so-called core inflation rose 4.8 percent in the year to September, up from 4.3 percent the previous month.

Ms. Reichlin added that there was still a lot of uncertainty about how inflation would play out in the coming months, “because the economy will slow down in the future and that will put downward pressure on inflation.”

Pantheon Macroeconomics, a research firm, noted that government policies designed to manage rising energy costs would also be “a key game changer” influencing prices over the next six months.

Inflation has been eating away not only the economy of Europe, but also that of the whole world. Supply chain delays and disruptions stemming from the coronavirus pandemic, and the surge in activity that accompanied the reopening of economies, have pushed prices higher. The high cost of energy and food that followed the Russian invasion of Ukraine also fueled inflation, with sanctions imposed by Europe, the United States and their allies accelerating it.

The European Central Bank has been aggressively raising rates in hopes of stemming inflation across the eurozone. On Thursday, ECB policymakers indicated that they are likely to approve another interest rate hike of three-quarters of a percentage point at their next meeting in late October.

Europe’s transition from Russian energy is expected to be a slow process, keeping oil, gas and electricity prices at painful levels for years. There is little the central bank can do to counter significant energy shortages like the one Europe is experiencing, said Sven Smit, president of the McKinsey Global Institute. Higher interest rates can’t suddenly generate more supply, he said, so prices will stay high.

In the United States, a measure of annual inflation slowed in August to 6.2 percent from 6.4 percent the previous month, according to data released on Friday. The lower rate reflected a decline in US gasoline prices.

The level is well above the Federal Reserve’s 2 percent inflation target but still significantly lower than Europe’s, an indication of how much harder Europe is being hit because of its long-standing reliance on Russian natural gas. The projected slowdown in growth is also expected to be more severe on the mainland than in the United States.

It turns out that the Fed’s determination to tamp down inflation with higher interest rates has been pushing prices down in the United States, but injecting them elsewhere. Anxiety over global turmoil has encouraged investors to put their money into US stocks and assets because they are seen as havens in times of turmoil. High interest rates make those investments even more attractive by offering higher returns.

The result is that the United States is exporting some of its inflation to other countries. As the dollar strengthens, imports from around the world become cheaper in the United States, which helps control inflation there. The other side of the coin is that a strong dollar makes imports to other countries, particularly essentials like energy and food, more expensive to buy with weaker currencies. The dollar is the world’s reserve currency and many key commodities, such as oil, are priced in dollars.

Inflation across the European Union, which has 27 members, topped an annual pace of 10 percent as early as August, and nations that don’t use the euro also saw energy and food prices soar to record highs.

In the Czech Republic, which has seen massive protests over high energy costs, inflation topped 17 percent in August, about the same rate as Poland recorded in September, which was a 25-year record.

Consumer prices in Britain rose 9.9 percent in August from a year earlier, down from 10.1 percent the previous month but still near the fastest pace in 40 years. Households and businesses in Britain are feeling the pressure on their budgets, along with market turmoil this week stemming from the government’s new economic strategy that upended mortgages, pensions and the value of the pound.

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