Beautiful Virgin Islands


Eurozone inflation hits fresh record, while economy grows robustly

Eurozone inflation hits fresh record, while economy grows robustly

The data will add pressure on the ECB to hike rates by half a percentage point in September.

The eurozone economy showed Friday it's more robust than expected despite ever-raging inflation — raising pressure on the European Central Bank to hike rates more substantially in September.

Eurostat data showed that the eurozone economy grew by 0.7 percent on the quarter, accelerating from 0.5 percent in the first three months of the year and defying expectations of a significant slowdown.

The strong performance was driven by rapid growth in Spain, which grew by 1.1 percent, and Italy, which expanded by 1 percent. In both cases, the service sector — boosted by tourism — was especially healthy.

On the other end of the spectrum was Latvia, where GDP dropped by 1.4 percent, and Lithuania, down 0.4 percent on the quarter.

Output stagnated in the eurozone’s largest economy, Germany, while it expanded by 0.5 percent in France, the eurozone’s second largest economy.

While the overall growth picture is less gloomy than expected, the eurozone is still beset with scorching inflation.

Headline inflation accelerated to 8.9 percent in July, up from 8.6 percent in June. Analyst expectations had seen inflation remaining at or just slightly above the June rate. The primary driver remains energy prices, which were up 39.7 percent on the year, followed by food, alcohol and tobacco, up 9.8 percent.

Of special concern to policymakers is core inflation, which excludes those volatile components and is seen as a gauge for medium-term price developments. It accelerated further from 3.7 percent to 4 percent, or twice the ECB’s price stability target.

"The inflation problem is getting bigger and bigger," said Commerzbank economist Christoph Weil.


September tightening


With inflation turning out persistently higher than expected month after month, the European Central Bank last week decided to raise interest rates by 50 basis points (0.5 percent), more than it had previously flagged. The central bank said it'll lift rates further in September, but it left open whether it would issue another 50-basis-point move or a more conservative 25-basis-point step.

That decision will be determined by incoming data, its policymakers said.

Despite Friday's improved growth figures, the ECB is keenly aware the latest round of data points to a significant slowdown in economic activity ahead, thanks in part to the effects of the ongoing Ukraine war and energy-price shock.

"What we see in the real economy, certainly it is not terribly encouraging," ECB Governing Council member Ignazio Visco told POLITICO earlier this week. "Everything was dismal."

The key flash composite Purchasing Managers Index, for example, showed last week that eurozone business activity contracted in July as both output and new orders fell for the first time since early 2021. Business expectations also point to more pain ahead, having fallen to fresh lows.

Souring growth prospects have already prompted investors to bet the ECB will stop raising rates much earlier than they expected only a few months ago. Weaker growth should help bring down prices over the medium-term and limit the risk of inflation becoming more embedded in the real economy through wage growth.

"With a recession looming and inflation reaching new highs, the question is how the ECB will respond to an economy which is already cooling down," ING economist Bert Colijn said. "Don’t rule out the ECB front-loading hikes. So 50 basis points in September is definitely still on the table."

In an interview with the Estonian paper Postimees released earlier Friday, ECB Vice President Luis de Guindos underscored that inflation worries will trump growth concerns when the central bank sets it policies.

"The main factor that will guide our decisions will be the evolution of inflation," he said.

As Oxford Economics economist Nicola Nobile sees it, Friday's data clearly point in one direction.

"With inflation not showing any signs of cooling off in the short term and with the economic outlook not yet derailing, we expect another 50 [basis point] increase in September from the ECB," she said.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Paul McCartney Honours Bruce Springsteen at Ivor Novello Awards
I have a dream, MLK inspiring speech
US and UK to Reject ICJ Ruling on Israel's Rafah Offensive
Aretha Franklin, Marvis Staples - Oh Happy Day
World Court Orders Immediate Halt to Israeli Offensive in Gaza
BVI Freedom Song
Understanding FLiRT COVID Variants and Their Impact
Billy Preston - You Can't Beat God Giving (Live)
Baltic NATO Members to Construct 'Drone Wall'
VIRGIN ISLANDS REGGAE CARIBBEAN RIDDIMZ
Global Life Expectancy Dropped By 2 Years Due To COVID-19
Oh Happy Day Edwin Hawkins - Anthony Brown w FBCG Combined Choir
Macron Halts New Caledonia Voting Reform After Riots
'Stand by Me' performed by Karen Gibson and The Kingdom Choir
Rishi Sunak Shelves Rwanda and Smoking Policies Ahead of Election
National Anthem of the British Virgin Islands - Oh, Beautiful Virgin
US Refuses World Court Jurisdiction
Hello Dolly
China Conducts Surprise Military Drills Around Taiwan
for KING & COUNTRY - Amen (Reborn) [feat. Lecrae & The WRLDFMS Tony Wi
Grim Polls Predict Major Loss for PM Rishi Sunak
Bob Marley - Get Up Stand Up
Rishi Sunak's Campaign for UK Election: Key Issues Highlighted
Yes He Can
German Property Crisis Worsens as Foreign Investment Declines
What A Friend We Have In Jesus
Princess of Wales's Taskforce Calls for Business Investment in Early Childhood
Unforgettable
Campaign Groups Condemn UK Report on Protests
Touch The Hem Of His Garment
Former Royal Marine Charged with Espionage Found Dead
The Lord's Prayer
Australian PM Calls for Julian Assange's Freedom
THE GOD MOVEMENT...BEAUTIFUL BVI
ICC Seeks Arrest Warrants for Israeli and Hamas Leaders
Siyahamba
UK's Infected Blood Scandal: Conclusion Nears After Seven Years
Ray Charles And The Voices Of Jubilaton, Oh, Happy Day
Julian Assange Granted Right to Challenge US Extradition
Ramblin' Rose
Congo Army Thwarts Attempted Coup Involving Americans and a British Citizen
Protoje - Who Knows ft. Chronixx
Ireland's Homeless Gain Voting Rights
Pressure - Virgin Islands Nice
Blinken orders crackdown on Israel-Hamas leaks
Phil Wickham - House Of The Lord
Julian Assange Faces US Extradition: Key Facts
My God Is Real (Yes, God Is Real)
Jacob Zuma Takes Campaign to ANC Stronghold Soweto
The Lion King Circle of Life by LEBO M. — LIVE at the HAVASI Symphonic
Attempted Assassination of Slovakia PM Robert Fico: Investigation Ongoing
Louis Armstrong - When The Saints Go Marching In
What Happens If an Iranian President Dies in Office?
Kanye West Sunday Service - hallelujah, salvation, and glory
Spain Recalls Ambassador After Argentina President's Remarks
Jonathan Nelson - I Believe (Island Medley
Rishi Sunak Faces Cabinet Backlash Over Proposed Changes to Foreign Student Visas
From The Virgin Islands Sqad Up
Rwanda Denies Entry to Human Rights Researcher
Common, John Legend - Glory
Iranian President Ebrahim Raisi Reportedly Killed in Helicopter Crash
Anthony Evans vs. Jesse Campbell - If I Ain't Got You
Blue Origin Resumes Space Tourism with 90-Year-Old Ed Dwight
I have a dream, MLK inspiring speech
Rishi Sunak and Wife Akshata Murty Wealthier Than King Charles
Aretha Franklin, Marvis Staples - Oh Happy Day
New Dutch Government Drives Wedge Through EU Liberals
BVI Freedom Song
Iranian President Raisi Missing After Helicopter Goes Down
Billy Preston - You Can't Beat God Giving (Live)
Freemasons and ‘Global War Party’ Accused of Conspiring Against Georgia
VIRGIN ISLANDS REGGAE CARIBBEAN RIDDIMZ
Poland Supports Rolls-Royce's Nuclear Power Plant Initiative
Oh Happy Day Edwin Hawkins - Anthony Brown w FBCG Combined Choir
European Ports Overflow with Unsold Electric Vehicles
'Stand by Me' performed by Karen Gibson and The Kingdom Choir
Esprit Files for Bankruptcy in Europe, Putting Hundreds of Jobs at Risk
National Anthem of the British Virgin Islands - Oh, Beautiful Virgin
Chevron Halts North Sea Drilling Amid Rising Tax Burden
Hello Dolly
Jeremy Hunt Accused of Exaggerating Conservatives' Economic Record
for KING & COUNTRY - Amen (Reborn) [feat. Lecrae & The WRLDFMS Tony Wi
Victoria Atkins Discusses Historical Gender Bias in the NHS
Bob Marley - Get Up Stand Up
Dublin and Monaghan Bombings 50th Anniversary: Calls for Justice
Yes He Can
Rishi Sunak and Akshata Murty’s Wealth Rises to £651 Million
What A Friend We Have In Jesus
New Caledonia Riots Escalate After French Voting Rights Change
Unforgettable
Renters Face Fierce Competition as Listing Times Shrink
Touch The Hem Of His Garment
Surge in Fake Science: 19 journals shut down due to fraudulent papers from 'paper mills'
The Lord's Prayer
Global Birthrates Decline, Raising Economic and Social Concerns
THE GOD MOVEMENT...BEAUTIFUL BVI
Boeing Faces Possible Prosecution Over 737 MAX Settlement Violation
Siyahamba
Prisoner Escapes in France as Two Officers Killed in Van Ambush
Ray Charles And The Voices Of Jubilaton, Oh, Happy Day
×