European inflation fell to 6.1%, a real relief for consumers open months | World news

The increase in Europe brought a positive change with a significant decrease to 6.1%, but prices are still showing a squeeze to consumers who do not see real relief in what they pay for food and other needs.

The annual figure in May fell from 7% in April for the 20 countries that use the euro, the statistics agency of the European Union Eurostat said on Thursday.

It is a welcome sign that the explosion in price increases – which peaked at a record double digits last October – is moving in the right direction.

But economists warn it will be several months before unhappy consumers see more consistent levels of inflation reflected on price tags in stores. While prices are rising more slowly, they are coming on top of already high prices due to Russia’s war in Ukraine and other factors.

A deep relief for people like 76-year-old Brigitte Weinbeck, who was shopping this week at an outdoor 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 do and when and then I go shopping,” she says. “Otherwise, sometimes you buy things that it won’t make sense.”

The food bank at the St. Wilhelm Roman Catholic Church in Berlin, meanwhile, has gone from serving 100-120 families before the war in Ukraine to 200.

“Now, there are people who are at the limit of their income,” said CEO Christine Klar. “They say the prices have gone up a lot now. And now they know, or hear, that they have the right to use the food bank, so they come.”

Food prices in the Euro area rose by a painful 12.5% ​​in June from a year ago, but also eased from the 13.5% increase recorded in April.

The key to the lower cost price figure is the cost of energy, which fell 1.7% from a year ago after an increase of 2.4% a month ago.

Core inflation, which excludes food and energy consumption, fell to 5.3% from 5.6% in April. That number is seen as a better indicator of price pressures in the economy from demand for goods and higher wages. It is high enough that the European Central Bank is expected to approve another interest rate increase at its June 15 meeting.

Savings fell in the three largest economies where the euro is used: Germany to 6.1%, France to 5.1% and Italy to 7.6%. The decline is “broadly sourced, with food, energy and inflation all contributing to the easing,” economist Rory Fennessy wrote in Oxford Economics.

The currency surged in mid-2021 as fears that Russia could invade Ukraine sent natural gas and oil prices higher on fears of losing Russian supplies and as the global economy bounced from the worst of the pandemic. , providing supplies of parts and materials.

Energy and supply cuts have eased, but higher prices have spread through the economy as workers demand better pay and companies find they can raise prices to cover the the price is increasing.

“Total inflation is decreasing rapidly, driven by such factors as low energy prices and large base effects from 2022. At this point, it is important to confirm that the general price level continues to rise from the level of it’s already high,” according to economists at SEB bank.

“Consumers will continue to have a tough time, although central banks will see the situation ease somewhat late in 2023 from the perspective of inflation,” they wrote.

Germany, whose economy has contracted for two straight quarters marking the heart of the recession, has tried to cushion the blow of high energy prices with subsidies for families and businesses and discounted transit tickets. everybody. That in part helps push energy to increase dramatically, but food is also growing.

The price for energy and food have been major challenges for the European economy as consumers are forced to spend more on necessities and less to spend on everything else.

The Eurozone avoided recession in the early months of the year, thanks largely to governments scrambling to line up non-Russian sources of natural gas to avoid an energy crisis. The economy grew only 0.1% in the first three months of the year.

Also weighing on economic growth are rapid interest rate hikes from the European Central Bank as it tries to wrestle inflation to its target rate of 2%.

Higher interest rates affect the cost of borrowing across the economy, making it more expensive to get a mortgage to buy a home or an investment loan – in turn, reducing demand for goods. it causes inflation.