Inflation in the United States has already peaked, or at least that has been the conclusion that many economists and analysts have drawn after knowing the consumer price index (CPI) for July in the North American country last week.
However, the situation on this side of the Atlantic is very different: more than half of the countries of the European Union (EU) register an annual double-digit CPI and experts assure that inflation in the Old Continent is far from cooling down .
The sharp rise in prices directly affects families, which will foreseeably weigh down consumption and, therefore, the economic future of the entire region. There are more and more voices that predict a quick and harsh recession as a result of high inflation (and the monetary tightening to deal with it). In fact, the eurozone economy has already started to contract .
The annual US CPI fell last month to 8.5%. In June it had climbed to 9.1% , a rate not seen since the end of 1981. Despite the decline, different analysts opted for caution. “It’s too early to declare victory in the fight against high inflation,” Oren Klachkin, an economist at Oxford Economics, said last Friday.
However, the general feeling in the market since then is that inflation in the world’s greatest power may already have peaked . Of course, it is foreseeable that the core CPI (which does not weight energy prices or those of fresh food, as they are more volatile) will mark a peak in September or October around 6.5%, according to experts from ING Economics.
In any case, it is really striking the different realities that the US and Europe live. On this side of the ‘pond’, prices continue to rise at a rate not seen in decades in most countries. Moreover, the annual CPI rates were already in double digits last month in 16 of the 27 countries that make up the European Union (EU), that is, in 59%. And if you look only at the eurozone (the countries of the bloc that have the euro as their currency), the CPI exceeded 10% in ten of the 19.
Specifically, the highest inflation rates in July in the euro zone were registered in Estonia, Latvia and Lithuania , where they exceeded 20%. In Slovakia and Slovenia the CPI reached 12.8% and 11.7%, respectively. Likewise, in the Netherlands it stood at 11.6%, Greece was close (11.5%) and not far behind were the CPIs of Spain (10.8%), Cyprus (10.6%) and Belgium. (10.4%).
In Germany, the region’s largest economy, the consumer price index moderated slightly last month to 7.5% annually , although the harmonized CPI actually set a new record at 8.5%. All in all, inflation across the eurozone hit a record high of 8.9% last month . Eurostat is expected to confirm this data tomorrow, Thursday.
Countries in Russia’s orbit
What is behind these strong price increases? One of the main factors is Russia’s energy dependency, which is not only a problem for Germany or the Baltic countries. Most of Eastern Europe has been hooked on Russian energy and is now paying high prices for the war in Ukraine.
Thus, if you look beyond the euro area, the Czech Republic has its CPI annual rate at 17.9% (July data). In Bulgaria it is at 17.3%. In Romania it reaches 14.9%. And in Hungary, which will remain hooked on Russian oil by pipeline , it stands at 13.7%. Nor are Russia and Belarus spared from high inflation rates, with the official CPI at 15.1% and 18.1%, respectively.
And the last to join the double-digit inflation ‘club’ has been the United Kingdom. There , the annual CPI climbed 10.1% in the seventh month of the year compared to 9.4% in June. Put another way: prices rose at a rate not seen since February 1982.
“Inflation shows no signs of cooling down in the short term”
The Bank of England (BoE) already warned earlier this month that UK inflation is not exactly close to peaking. The monetary organization projected that the British CPI will climb above 13% at the end of the year . This is something that has not happened since 1980, that is, since the last part of the deep recession experienced in the late 1970s and early 1980s due to the first oil crisis.
Hand in hand with this bad inflationary omen, the BoE also predicted a prompt and long recession for the British economy, which will begin at the end of this year and may extend throughout 2023, always according to the central entity. As he underlined in his statement on August 4, all the macro scenarios he has prepared “show very high short-term inflation, a fall in GDP during the next year and a marked decrease in inflation thereafter” .
Prospects for the eurozone are not much better either. “Inflation shows no signs of cooling down in the short term,” said the experts at Oxford Economics after learning the latest (record) CPI data. In its latest forecasts, the European Central Bank (ECB) anticipated that inflation in the euro area will be 6.8% in 2022 as a whole . The ECB will update these estimates next month as usual and it would come as no surprise if it went on to paint a darker horizon ahead.