The shock wave of the pandemic has rekindled the specter of an inflationary spiral all over the planet. In the United States first, the price fever has aroused fears of a lasting rise in inflation among many economists. In Europe, YoY price index rate climbed 3% last August against 2.2% in July according to the latest figures released by Eurostat on Friday, September 17. This is the highest for 10 years. The Brussels statistics institute thus confirmed its first estimate made a few weeks ago.
In the European Union, inflation peaked at 3.2% in August against 2.5% in July. “It’s not much of a surprise. It’s the second guess. The figure of 3% seems maddening. We have to put that back in the context of soaring energy prices. In August 2020, energy prices were very low. This increase is artificial compared to August 2020. Inflation has been artificially low and is now artificially high “ said the economist at ING, Charlotte de Montpellier, interviewed by The gallery. In fact, the consumer price index had reached a low of -0.2% in the summer of 2020 due in particular to a significant drop in energy prices. The mechanical rebound and the “base effect” in statistics must therefore be taken into account.
Added to this are the pressures on supply chains that persist across the globe and have been driving up the price of ocean freight and air freight for months. On the side of the European Central Bank, its president Christine Lagarde ruled “temporary“the marked rise in prices during a recent press briefing. The Frankfurt institution anticipates inflation at 2.2% in 2021, slightly above its target set at 2%. In 2022, the price index could stand at 1.7%. In this context, the ECB has decided to slightly reduce its exceptional support measures for the economy put in place since the start of the health crisis.
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Soaring energy prices, core inflation at 1.6%
The global economic recovery first driven by China and then the United States caused energy prices to soar at the start of the year. With the acceleration of vaccination during the first half of 2021 and the lifting of containment measures, the engines of the European economy have also restarted at a rapid pace after an abysmal plunge in 2020. As a result, demand for energy has increased. soaring in recent months on the Old Continent. The friction between supply and demand has had repercussions on the prices of raw materials. Energy prices jumped 15.4% on an annual basis in August, their largest increase recorded since the start of the year. In detail, an examination of the figures of the European Statistics Department indicates that the largest contribution to the annual inflation rate comes from energy (1.4 percentage points). Next come industrial goods (0.65 percentage point) and food (0.43 percentage point).
To better understand this indicator, “iIt is more interesting to look at core inflation which excludes the most volatile prices such as energy. The price index excluding energy is at 1.6 points. It is not historically high “ explains the economist. In addition, this 1.6 point “is overestimated due to the summer sales shifted from July to August in 2020 in many euro zone countries” she adds. For services that are less on sale, prices increased by 1.1% “Inflationary pressures are far from extreme” she specifies.
Significant contrasts in the euro zone
The price index calculated by the European statistical services masks significant disparities within the monetary union. Some countries like Estonia (5%), Lithuania (5%) or Belgium show relatively high inflation rates while others like Greece (1.2%) or Malta (0.4%) register more moderate increases. As for Germany, the consumer price index increased by 3.4% against 3.3% in Spain or 2.5% in Italy. Regarding France, inflation accelerated to 2.4% in August. For its part, the Banque de France in its latest economic report anticipates inflation of 1.8% in 2021 and 1.4% in 2022. Economists expect monthly peaks above 2% between August and December. “However, this significant surge, due in particular to the effects of increases in the costs of industrial inputs on the prices of manufactured products, should remain temporary” explain the conjuncturists of the Central Bank.
Towards an upward trend in inflation?
At this stage, it is still difficult to imagine such a scenario. “This inflation is mainly linked to temporary factors relating to the rise in energy prices and tensions on the supply chains. It’s not a time of hyperinflation“ tempers Charlotte of Montpellier. It anticipates an increase in inflation in the euro zone to 1.7% in 2021 and 1.6% in 2022. On the other hand, it does not exclude a change in trend in the years to come.
“Between 2010 and 2020, core inflation was 1.2% on average. There is a trend that will change. Companies must pass this increase in costs on to prices and we are seeing some pressure on wages. . In Germany, there have been negotiations with unions in the industry. In France, the minimum wage is expected to increase due to the rise in prices. “ she adds. “There could be a period with higher prices than in past periods, but this increase is unlikely to exceed the ECB’s main target of 2%.”
Most economists today agree that inflation is mainly driven by temporary inflationary surges. While an upward trend is not to be ruled out, these peaks caused by the recovery and temporary factors are far from making a hyperinflationary trend.
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