Inflation in the European countries using the euro currency has broken into double digits as prices for electricity and natural gas soar, signaling a looming winter recession for one of the globe’s major economies as higher prices undermine consumers’ spending power.
Consumer prices in the 19-country eurozone rose a record 10% in September from a year earlier, up from an annual 9.1% in August, EU statistics agency Eurostat reported Friday. Only a year ago inflation was as low as 3.4%. Price increases are at their highest level since record-keeping for the euro started in 1997.
Energy prices were the main culprit, rising 40.8% over a year ago. Food, alcohol and tobacco jumped 11.8%Inflation has been fueled by steady cutbacks in supplies of natural gas from Russia and by bottlenecks in getting supplies of raw materials and parts as the global economy bounces back from the COVID-19 pandemic. The Russian cutbacks have sent gas prices soaring to the point where energy-intensive businesses such as fertilizer and steel say they can no longer make some products at a profit.
Meanwhile, high prices for utility bills, food and fuel are leaving consumers with less money to spend on other things. That is the main reason economists are predicting a recession, or a serious and long-lasting downturn in economic activity, for the end of this year and the first months of next year.
The European Central Bank is raising interest rates to combat inflation by keeping higher prices from being baked into people’s expectations for wages and prices, but can’t by itself lower energy prices.
European officials say the cutbacks in pipeline gas from Russia’s state-owned exporter Gazprom are energy blackmail aimed at pressuring and dividing European governments over Western sanctions against Russia and their support for Ukraine, including weapons deliveries. Higher gas prices feed through into higher heating bills and higher electricity costs because natural gas is used to generate power, heat homes and run factories.
Prices in Germany, the largest single eurozone economy, rose 10.9%, hitting double digits for the first time in decades. Germany plans to spend up to 200 billion euros ($195 billion) helping consumers and businesses cope with surging gas bills. Chancellor Olaf Scholz said Thursday that the government was reactivating an economic stabilizing fund previously used during the global financial crisis and the coronavirus pandemic.
Shoppers at a weekly outdoor market in Cologne, Germany, said higher food prices and utility bills were on their minds. “I’m already looking a lot more for special offers,” said Myriam Maierhofer, a 64-year-old trainer and coach for staff development. “I don’t throw away so much so quickly, so I’ve become more economical with food. And this morning, I also turned down the heating in the rooms again.”
Christian Schrader, 35, is less worried about food prices but said that “you start to think about which rooms need to be heated in the flat and try to explain to the children that we only play in one room.” A bigger worry was “the social dimension,” he said. “Inflation has often been a driver for social division, for extreme tendencies, for populism. This dimension worries me more.”