Eurozone in Freefall: Inflation Hits Record High as Currency Tackles ‘Huge Burden’ | City & Business | Finance

The European Commission’s statistics office, Eurostat, revealed the 9.1% rise on Wednesday, compared to 8.9% in July, which was initially the highest level in the euro’s 23-year history. The rise in inflation exceeded expectations and appeared to strengthen the case for a sharp rate hike by the European Central Bank on September 8.

It was also higher than the 9% expected by economists.

Eurostat revealed that energy had the highest annual inflation rate at 38.3%, down slightly from 39.6% in July.

While food, alcohol and tobacco rose 10.6% from 9.8% in July.

German central bank president Joachim Nagel responded to the news by saying high inflation was “becoming a huge burden for more and more people”.

He added: “We need a big interest rate hike in September. And further interest rate hikes can be expected in the coming months.”

The news comes after ECB board member Isabel Schnabel warned that long-term inflation expectations could “unanchor” the bank’s 2% target.

She said surveys suggested inflation was undermining public confidence in central banks.

The rise also deepened recession fears and harassed markets as central banks on both sides of the Atlantic prepared to raise borrowing costs for businesses and households again next month.

Robin Brooks, chief economist at the Institute of International Finance, previously warned in a tweet: “For the past six months, every bounce in the euro has been a good opportunity to sell the single currency. It’s the same today today.

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The STOXX 600-company stock index fell 0.5% to a six-week low, leaving it down about 14% for the year.

U.S. e-mini stock futures pointed to a slightly stronger start on Wall Street for the S&P 500 after falling 1.1% on Tuesday.

Economic news remained grim with overnight data showing economic activity in China, the world’s second-largest economy, extended its decline this month after new COVID infections, the worst heat waves in decades. and difficulties in the real estate sector.

It comes after Russia cut off gas supplies through a major pipeline to Europe on Wednesday for three days of maintenance amid doubts it will not be reignited.

The move will fuel concerns about energy rationing over the coming winter months in some of the region’s wealthier countries.

The energy crisis has already created a painful cost of living crisis for consumers and businesses and forced governments to spend billions to ease the burden.

German bonds had their worst month in more than 30 years as eurozone inflation hit a record high.

Jamie Niven, senior bond fund manager at Candriam, said the rate hikes planned for this year had been widely priced into markets, particularly in the United States.

Investors began pricing in previously anticipated rate cuts next year following Fed Chairman Jerome Powell’s hard-hitting speech last week.

Mr Niven said: “I think there is more pain ahead in credit markets and in equity markets before we see better prospects. I don’t think central banks will be in a state where they can cut to kind of soften the blow of the recession.”

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