The inflation rate up slightly in July in Europe - Trends-Tendances - economic news in real time.

Inflation: crest of the wave in sight? – Economic policy

Going from 9.1% in June to 8.5% in July, US inflation positively surprised the financial markets by showing, more than expected, signs of slowing down.

This slowdown is linked to several phenomena: certain prices, such as air fares, clothing, education or communication prices, have actually fallen. Fuel prices also played an important role as they were clearly on a downward trend.

This slowdown is linked to several phenomena: certain prices, such as air fares, clothing, education or communication prices, have actually fallen. Fuel prices also played an important role as they were clearly on a downward trend. It is very likely that the slow fall in US inflation will continue in the coming months. Certainly, some prices will continue to rise because wages are still on the rise. And as companies face a still solid demand, they do not hesitate to postpone the increases on their selling prices. But recent developments show that these increases are less pressing. Moreover, they will be more than offset by the continued fall in fuel prices but also by the fact that housing prices (rentals and purchases) are slowing down. It must indeed be remembered that the price of housing occupies an important place in the American price index. For rents, it is quite natural (because it is a real consumption expenditure). But the US index also takes into account the purchase price of homes, which is not yet done in Europe. However, the sharp rises in interest rates in recent months have somewhat cooled the US housing market. To be complete, it is necessary to add a very important element: inflation does not reflect the “level” of prices but the increase in it over one year. Therefore, if prices continue to rise, but less rapidly than in the past, this is enough to bring down inflation. This is called the “basic effect”. And we will remember that it was in the second half of 2021 that prices started to climb. A year later, the fact that they are increasing more slowly will work in favor of a drop in inflation. This last element also pleads for a slowdown in inflation in the euro zone. Most commodity prices had soared from mid-2021 and have now stabilized. Some have even already returned to “normal” levels. This should mechanically relieve inflation. But there remains the question of gas, which will be THE variable to follow in the coming months. Its price is currently extremely high due to fears of a Russian tap shutdown. If this happens, the euro zone will not be immune to new surges, but above all to a pure and simple shortage, which in turn could cause price increases for other goods and services. But conversely, the economic difficulties caused by a lack of energy (lower income, loss of jobs, etc.) will reduce the ability of companies to pass on cost increases to their selling prices, which would slow down the inflation. In conclusion, while the situation is clearing up in the United States in terms of inflation, the equation remains very complex in the euro zone: on the one hand, a tense geopolitical situation and an extreme dependence on energy imports . On the other, a base effect arguing for a fall in inflation, but above all an economic slowdown limiting the ability to increase prices. Personally, I conclude that the balance will tip in favor of these last elements and that inflation will slowly come back from September. But this conclusion is dependent on many assumptions, in particular on the development of the war in Ukraine. However, the uncertainty remains immense.

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