Annual inflation in the euro zone has reached 5.1%, which a February 14th report from the European Central Bank (ECB), says is due primarily to rising energy prices. The ECB also reports that 0.2 percentage points of the euro-zone inflation rate is attributable to Germany ending its temporary cut in the value added tax.
The U.S. Bureau of Labor Statistics, BLS, reported on February 10th that in January, inflation in the U.S. economy reached 7.5% on an annual basis. According to the ECB report, the higher U.S. inflation rate is due to the weight attached to housing rent in the consumer-price index used by the BLS. The BLS, in turn, points to food prices, which increased 0.9% month-to-month in January.
While the U.S. inflation rate continues to run higher than the rate in the euro zone, the BLS report shows a tapering of the inflation rate in recent months. The Eurostat and ECB reports do not yet indicate that European inflation has reached its peak. Reflecting concerns for continued high inflation, a survey of professional forecasters published by the ECB on February 4th showed a considerable 1.1 percentage-point rise in expected euro-zone inflation for the first quarter of 2022.
A monetary policy report from the Bank of England on February 3rd reflected the ECB survey, with no immediate decline in British inflation in sight. The Bank of England expects inflation in the U.K. to peak at 7% in the spring.
The Bank of England and the Federal Reserve have both raised interest rates to bring inflation down again. So far during the current high-inflation episode, the ECB has refrained from such policy actions.
Sven R. Larson is a political economist and author. He received a Ph.D. in Economics from Roskilde University, Denmark. Originally from Sweden, he lives in America where for the past 16 years he has worked in politics and public policy. He has written several books, including Democracy or Socialism: The Fateful Question for America in 2024.