EU raises inflation forecast to 8.3% as Ukraine war drives prices up

Inflation will reach 7.6% in the eurozone and 8.3% in Europe this year, according to revised forecasts, as Russia’s invasion of Ukraine put dampers on the region’s economies.

Thursday’s forecast from the European Commission, the EU’s executive arm, comes as markets watch inflation prints closely. in the United States , CPI rose 9.1% year-on-year in Juneaccording to numbers released on Wednesday – came in much higher than economists had expected.

Concerns about price hikes to record levels are also spreading in Europe, where the latest reading showed inflation reached a level It recorded a growth rate of 8.6% in the Eurozone in June.

The situation increases pressure both on national governments, which are trying to limit the impact of price hikes on households, and european central bank, who is scheduled to meet next week.

Back in May, the European Commission said it expects eurozone inflation to reach 6.1% in 2022, before declining to 2.7% in 2023. Now, both forecasts have been revised to 7.6% and 4%, respectively.

For Europe as a whole, inflation expectations have been revised from 6.8% in 2022 and 3.2% in 2023, to 8.3% and 4.6%, respectively.

“Moscow’s actions are disrupting energy and grain supplies, raising prices and eroding confidence,” European Economics Commissioner Paolo Gentiloni said in a statement.

He added, “Record inflation is now expected to peak later this year and decline gradually in 2023. With the course of the war and the reliability of gas supplies unknown, these forecasts are subject to a high risk of uncertainty and regression.”

European officials fear a Complete shutdown of gas supplies from Russia. Although the bloc has been gradually reducing its purchases of Russian gas, these imports remain an important source of energy for the bloc – most notably for sectors that use gas as a raw material, such as the chemical sector.

Pipeline operator Nord Stream AG confirmed earlier this week that Maintenance work in Nord Stream 1 Work is in progress until July 21. The pipeline is critical to transporting Russian gas to Germany and beyond, but there are concerns that flows will not return to normal levels after the works are completed.

Many economists are pricing in a file recession in the eurozone Either later this year or 2023, but – for now at least – European officials refuse to talk about the possibility of a recession.