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Insights

Perspectives on European Inflation | July 2022

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As the pandemic’s influence started to ease in 2021, new symptoms of economic reopening, pent-up demand, and overwhelmed global supply chains began to emerge.

The dreaded “i-word” was suddenly spoken, after a decade of being so subdued that it was barely worth watching from month to month. Inflation has now reached levels not recorded in decades and is becoming widespread. In this research piece, we explore causes of the current bout of inflation and how it differs by region.

Key Takeaways
  • Inflation is being driven by supply-demand imbalances. Currently, most inflation in Europe is tied to the supply side of the economy: energy prices, reopening effects and supply chain bottlenecks throughout Europe and the UK account for 65% to 75% of headline inflation. In Europe and the UK, food prices account for 18% and 10% of headline inflation, respectively. 
  • Unlike the U.S., continental Europe’s demand recovery has been anemic, pointing to fundamentally different economic contexts that are driving the inflation backdrop. In the UK, there is more evidence of a demand-side recovery, particularly in non-durable and semi-durable goods. 
  • The Russia-Ukraine conflict has meaningfully impacted commodities-related inflation. 
  • Central banks are responding to the current inflation environment, although the European Central Bank (ECB) has generally been the most reticent to pivot to a more hawkish stance.
Get this report to learn about:
  • Regional differences in inflation
  • The impact of Russia’s invasion of Ukraine
  • How the energy sector is suffering from the same supply-demand imbalances
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