Common and Unique Threads of European Inflation
We got consumer price reports for many European countries this week. The main story for the Eurozone is still one of sticky inflation driven by elevated food and fuel prices, though there are some differences emerging among the major European economies. In this analysis we are using EU harmonized consumer price indexes (CPI) produced by Eurostat, rather than those of each country.
Let’s start with the UK. While headline inflation appears to be slowly rolling over, core inflation is still arguably rising, even when we strip out the significant impact of food and fuel. The culprit here appears to be accommodation services, i.e., hotels. There appears to be significant energy inflation passthrough in British hospitality.
Next, let’s look at France. Similar to the UK, core inflation is arguably still rising while headline inflation is slowly rolling over—all at lower rates than the UK. The likely reason for the higher level of core inflation in the UK is the energy price pass-through. As can be seen below, gas, electricity, and solid fuel (coal) prices are rising at far lower rates than in the UK. This permeates accommodation services too. In a Guardian article from November 15, 2022 titled Long queues at French petrol stations as fuel subsidy down the author states “France claims it has been the most generous country in Europe in helping people deal with the cost of living crisis, capping gas and electricity price increases and offering a government sponsored fuel rebate, which has cost the state more than 7 billion Euros. So, the inflation pressure is there, the government is just shielding its citizens, picking up some of the cost.” Way to manipulate the stats, France!