Eurozone raises interest rates

In an effort to rein in the spiralling inflation in the eurozone, the European Central Bank (ECB) increased interest rates for the first time in more than 11 years. In order to prepare for future increases this year, the ECB raised its benchmark interest rate by 0.5 percentage points, to 0.0 percent.

Since 2014, the rate has been negative in an effort to revive the area's economy after several years of subpar expansion. However, as a result of rising food, fuel, and energy prices, consumer prices increased by a record 8.6 percent in the year to June.

That is significantly higher than the bank's target of 2%. It follows rate increases by the Bank of England and US Federal Reserve in an effort to contain the price increase. The rate at which prices are rising is known as inflation. For instance, milk inflation is 5 percent if a bottle of milk costs €1 and goes up by 5 cents from a year ago.

The conflict in Ukraine and problems with the Covid supply chain have increased costs globally, putting pressure on households.

Due to its heavy reliance on Russia for its oil and gas, the eurozone is fragile. In light of worries that Moscow will stop delivering gas this year, it urged member states to start rationing supplies this week.

The ECB president, Christine Lagarde, gave the following justification for the rate increase: "Economic activity [in the eurozone] is slowing. Russia's unjustified aggression against Ukraine continues to hinder development.