In Europe, a limited rise in inflation

With an inflation rate of 5.4% in July, the United States is worried about a possible overheating of their economy. Europe can hardly share the same fear. For now, neither inflation nor the recovery are as strong there. This is particularly true in the euro area, where inflation in July was 2.2%. While this is certainly a sharp increase compared to the period of deflation in autumn 2020, it remains around the official target of the European Central Bank (ECB), set at 2%. Excluding energy and food prices, which are volatile, inflation in the euro zone is only 0.7%. The scenario of an inflationary spiral remains highly improbable.

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With an initially slower vaccination and a later reopening of economies, the nineteen countries that have adopted the single currency are not at the same point of recovery as the United States. « [Au deuxième trimestre], the level of gross domestic product [PIB] real was still 3% below that of the end of 2019, with countries like Spain (- 6.8%) and Portugal (- 4.6%), which are even further behind ”, recalls Marchel Alexandrovich, analyst at Jefferies Bank. In comparison, the GDP of the United States is almost a point above its level at the end of 2019.

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Of course, the same post-Covid-19 global tensions produce the same effects in Europe as across the Atlantic. The surge of the barrel of oil pushes up the prices. Bottlenecks in ports and the difficulty in obtaining certain raw materials, from wood to cement, create tensions. The disorganization of the logistics sectors and the ups and downs of demand are causing shortages, the most glaring concerning electronic chips. Production costs are affected: in the euro zone, they grew by 10.2% in June, year-on-year. Enough to predict almost certainly a surge in inflation in the months to come within the euro zone. For example, the research firm Capital Economics is betting on a peak of 3.3%.

No heated debates

However, the ECB and the vast majority of economists believe that the phenomenon will be temporary. For a month, the price of black gold has been stable. Inflation is artificially high, because the comparison is made with the year 2020, when the economy was weak. This effect will gradually subside.

However, some countries need to be watched closely. Within the euro zone, Germany is experiencing the highest inflation, at 3.1% in July, and economists expect nearly 4% in the coming months. However, even in Europe’s largest economy, which is particularly allergic to inflation for historical reasons, the subject does not provoke heated debate.

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