Inflation in the Eurozone Hits 10.7 Percent as Growth Sharply Declines

European Union flags are seen in front of the European Central Bank (ECB) building, in Frankfurt, Germany, on July 21, 2022. (Wolfgang Rattay/Reuters)

Eurozone inflation rose above 10 percent this month as economies across the 19-nation bloc begin to slow.

Rising prices throughout the continent have put immense pressure on countries throughout the region. Preliminary data from the European Union’s statistics agency showed inflation hitting an annual rate of 10.7 percent for October, for the highest monthly reading since the creation of the eurozone.

The European Central Bank (ECB), like its counterpart the U.S. Federal Reserve, has been working to control inflation by raising interest rates.

The chance of a recession in the eurozone has increased as higher interest rates slow the economy down even more.

“We have to do what we have to do,” said ECB President Christine Lagarde, regarding the central bank’s hawkish interest rate policy, according to CNBC.

The ECB raised its key policy rates by 75 basis points on Oct. 27, bringing the benchmark interest rate to 1.5 percent.

The ECB confirmed additional rate hikes last week for the coming months, explaining that it had made “substantial progress” in normalizing rates in the euro zone.

It has plans to raise interest rates even further to bring inflation back to its 2 percent medium-term target.

After a sluggish 0.8 percent growth in gross domestic product in the second quarter, the euro bloc showed 0.2 percent growth for the third quarter.

Prices throughout the zone have been skyrocketing over the past year, especially food and energy. The spikes have largely been led by supply chain disruptions over the war in Ukraine and EU energy sanctions against Russia.

The loss of essential Russian natural gas has raised energy costs in Europe to surge in October to an annual rate of 41.9 percent from the 40.7 percent rate in September.

Meanwhile, food prices rose in the same period by 13.1 percent in October, up from 11.8 percent the previous month, causing pain throughout the euro bloc.

The euro’s core rate of inflation, which excludes food and energy, rose to 5 percent from 4.8 percent in September.

Energy Crisis and a Falling Euro

Russian gas supplies to the bloc are about 80 percent below last year’s total, forcing Europeans to import their gas from elsewhere and at higher prices.

High energy costs on the continent forced governments to offer financial assistance to households and manufacturers, with drastic measures such as price caps to limit inflation.

The sudden rise in the cost of living has also launched a wave of protests across Europe, as residents fear the lack of heat and food and severe financial stress this coming winter.

Another concern for the ECB is the decline of the euro against the U.S. dollar, which has become a key factor in pushing up inflation throughout the bloc.

“Inflation means currency is worth less. In the Eurozone inflation rates vary from 6% in France to 17% Netherland & 24% Estonia,” Lance Forman, a former British member of the European Parliament and euroskeptic, wrote in a tweet. “This is not sustainable and without their own currencies little can be done to rebalance. Wealth transfers unlikely. Pressure will build to end Euro.”