Inflation in Europe slips again to 5.5% in June but that won’t stop central bank rate hikes

Frankfurt: Inflation in Europe slid again in June but fell too slowly to offer much relief to shoppers grumbling over price tags or to stop more interest rate hikes that will raise the cost of borrowing across the economy. The annual rate of 5.5 per cent was down from 6.1 per cent in May in the 20 countries that use the euro currency, the European Union statistics agency Eurostat said Friday.

While that is a big drop from the peak of 10.6 per cent in October, persistently high prices in the U.S., Europe and the United Kingdom pushed some of the world’s top central bankers to make clear they are going to keep raising rates and leave them there until inflation drops to their 2 per cent goal considered best for the economy. Consumers saw relief on energy prices, which dropped 5.6 per cent after last year’s crisis, while food price inflation was up 11.7 per cent, easing from 12.5 per cent in May.

Core inflation, which excludes volatile food and fuel and offers a clearer picture of longer-term price pressures, rose slightly to 5.4 per cent from 5.3 per cent the month before.

The initial outbreak of inflation was fueled by Russia’s invasion of Ukraine, which sent energy and food prices higher. The global economy’s rebound from the COVID-19 pandemic also strained supplies of parts and raw materials. Energy and wheat prices have subsided to pre-war levels and supply chain problems have eased, but inflation has kept snaking through other parts of the economy.

Companies selling services instead of goods a huge swath of the economy including everything from office cleaning to haircuts to medical care have raised their prices. Hotels and airlines are charging summer travelers more, and workers are pressing for pay raises to make up for their lost purchasing power. The European Central Bank along with its peers around the world has been rapidly raising interest rates, the chief medicine against inflation. Increases in the ECB’s benchmark rate make it more expensive for people to borrow to buy homes and cars and businesses to acquire new office buildings and factory equipment. That reduces demand, working to drop price levels.

One obvious impact has been in housing, with prices starting to fall after a yearslong rally across Europe as homebuyers avoid asking for mortgages.

Those who have to refinance their home loans also are facing the prospect of paying thousands more than they

used to.