The eurozone moved closer to recession yesterday after it emerged that the economy contracted in the second quarter for the first time since the euro’s launch.

The economy shrank by 0.2% in the three months to June, as inflation driven by commodity prices wiped out growth.

France was hit badly, contracting more than expected.

Yet, while concerns mounted in Europe that the weakness in growth could prove protracted, more evidence emerged of global inflationary pressures. Just hours after the eurozone figures were released, US data showed consumer prices rose twice as fast as forecast by economists in July, hitting an annual rate of 5.6% – the highest figure since January 1991.

The surprise jump damped hopes of a quick easing of inflationary pressures in the US, suggesting Federal Reserve policymakers would continue to be concerned about rising prices.

In the eurozone, inflation was a record 4% in July, according to Eurostat, the European Union’s statistical office, although that was lower than its original estimate of 4.1%.

Financial Times