Eurozone inflation has grown quickly since the beginning of the year and is near or above 2% in France and in the whole Eurozone (2.3% in France, to be exact) which is at its highest since 2012, explains Jean-Luc Proutat, Research Analyst at BNP Paribas.
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“This is not really welcome for households and especially those with low income because it affects daily expenses such as food and energy, which are hard to cut back on.”
“Because of the increase in oil prices, energy related expenses have risen by 10% over one year in the Eurozone, even faster in France, due to the increased taxation on gasoline. The energy sector explains about 70% of the inflation increase since the beginning of the year.”
“This pick-up in prices might be unwelcome but could be temporary as energy prices are, by nature, volatile.”
“They could stay under pressure if tensions in the Middle East aggravate or lower with the Chinese economy slowdown and the rise in US’ oil supply.”
“In order to asses inflationary trends and fix interest rates, the European Central Bank focuses on “core” inflation which excludes energy prices.”
“Yet, the underlying trend in price is very subdued; it has been growing on a 1% path for several years now.”
“In short, beyond those tensions regarding the price of oil and the labor market, inflation dynamics are far from getting out of control in the Eurozone.”
“The relation between prices and salaries does not work as it used to and the Phillips curve has probably flattened. For the European Central Bank, which aims for a non-transitory inflation rate of 2%, there is no urgent need to increase interest rates.”
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