By Europe I meant the countries that provide their datas to Eurostat, i.e. the ones in the EU, EFTA, the EU candidate countries which gave the stats and the UK due to its relevance and availability of harmonized datas.
HICP stands for Harmonised Index of Consumer Prices and it’s the main indicator of inflation used by the ECB and by Eurostat. Its basket of goods and services is a bit different from the Consumer Price Index but the difference is rather small, often there isn’t at all except in periods such as sales seasons.
The average for the Eurozone is +7,7%, for the EU is +9,0%, for the US (which provides its data in HICP as well) for a comparison is +12,8%.
Why did I choose the last 5 years? Two reasons: in the second half of 2016 inflation began picking up across Europe after several years of prices stagnation, also 5 years is a symbolic measure.
Some main statistical findings.
* The best performers are Greece and Switzerland, for quite different reasons. They are also the only countries in which the prices are still lower compared to their peak, respectively in 2012 and in 2008. In the first case the main responsible is the internal devalutation Greece witnessed in the last decade which made nominal wages fall and therefore allowing enterprises in some sectors to lower the prices (thanks to the lowered cost of the labour input) and at the same time avoiding prices hikes the domestic market wouldn’t be able to absorb and handle. Switzerland, which has a long history of low inflation, has got the Swiss Franc’s perfomance to thank and to a lesser extent its good productivity growth. Prices in Switzerland grew slightly more than 10% in the last 25 years (!), with the entirety of such growth being in the 2000s. The strength of the CHF, which has always revalued over the long term (to the delight of cross-border workers as well), drives capital and financial flows into Switzerland and keeps down the price of imports for the raw materials and semi-finished goods the country needs, even in the most inflationary periods worldwide, and Swiss industry with its very high value added is not harmed by revaluations.
* Another interesting case is Ireland, which has shown among the lowest inflation rate in the period despite being by far the best economic (and demographic) performer. That may be due to the sharp productivity increase that the country has witnessed. Gains in labour productivity allow enterprises to achieve the same output unit with a lower labour input, or an higher output with the same input. If wages don’t offset productivity growth, businesses can improve their profits without raising prices and therefore conquer higher market shares abroad.
* Inside Eurozone the countries which recorded the highest inflation rates are the BeNeLux and Austria, which are among the best performers in both economic and population growth. The same to a slight lesser extent holds for Germany. To reduce imbalances inside the EZ the Southern countries need an inflation rate structurally lower than the Northern ones, which has been slowly but steadily happening after the 2011-13 crisis (with the exception of Spain in the analyzed period, which enjoyed high GDP growth rates in the second half of 2010s, though). With a lower inflation rate and good productivity growth (another Southern EU’s Achilles’ heel) such countries can recover competitiveness.
* On average, of course not always, countries inside the EZ have lower inflation than countries outside of it thanks to Euro’s stability, or better put, that’s true for the countries which have tendentially devaluing currencies. The Baltics have high inflation rate but that can be easily explained by their great economic and wages growth. Croatia and Bulgaria have showed the lowest inflation rate in the East and that can be explained by their currencies being pegged to Euro but to some extent by their lower economic and demographic perfomance in relation to some neighbors. Slovakia’s inflation tend to be a bit lower than the rest of V4 despite having similar economic structures. It’s worth noting that the countries that showed the highest increases in consumer prices during this period had not done so in previous years. The V4 countries, Lithuania and Romania showed no increase at all from September 2012 to 2016. This is a clear fact that the growth of the economy in these countries and in certain regions full employment are beginning to pay off in terms of inflation.
* A low inflation may be a measure of satisfying Central Banks’ independence and in the EZ that is guaranteed by the ECB. Outside of it there are countries with sensible monetary policies such as the UK or Sweden not to mention Switzerland among countries that don’t have their currency pegged to Euro, and countries which have stronger political influences in policy-making. In the last weeks Czech Republic, Poland and Romania are following Hungary’s first step in hiking interest rates as inflation is beginning to bite, which is a positive sign of CBs’ independence and wary monetary policy but on the other hand it might decelerate the economic recovery which is currently threatened in the aforementioned countries by the semiconductors crunch in the automotive sector.
* The country outside any scale is Turkey. Despite the Turkish Lira having lost 70% of its value in the last 5 years (the Turkish Central Bank slashed the interest rate yesterday, yet again, btw), Turkish trade balance in goods and current account balance are still negative (though improved). This happens when higher wages – which follow the inflation rate – and producer prices (both due to higher wages and import prices) “eat” the competitive advantage provided by the currency devaluation and thus enabling a wage-price spiral. If a country has flexible exchange rate and wants to achieve substantial short to medium term competitiveness gains while a devaluation is going on, it still needs an internal devaluation, i.e. letting real wages fall, in this context. A textbook example of this is Italy with the constant Lira devaluations in the 1970s and 1980s which never provided trade surpluses versus the 1993-94 devaluation that actually worked, at the expense of real wages and labour income share that plummeted.
Inflation isn’t an extremely bad thing per se and could be a sign of an healthy economy as long it’s pushed by a growing economy and it gets constantly monitored by monetary authorities which have the duty to ensure its stability and that it doesn’t get out of hand. An high inflation can cause distorting effects in a country’s economy and above all it either brings losses in consumers’ purchase power as we all know or in competitiveness, which I wanted to highlight as it’s often an overlooked point.
Inflation has been picking up in 2021 as we all know. I believe the central banks should keep an eye or two on it and ensure medium to long term price stability, as inflation breeds inflation, yet I believe most of it to be transitory and don’t agree with some fearmongering which is being made (which could negatively affects expectations, that are fundamental) as far too many inflationary events are happening right now around the world – some may remain this way in the future, most of them don’t look like so – and we need to wait for the next year before evaluating the actual longer term inflation risks.
Thanks everyone for reading, any observation is welcome!
So why do we still have negative interest rates in the EU which just feed inflation?
Rip Turkey
we don’t join Eurozone so they can inflate forint into the deep
It’s incredible how much value some of the so-called hard currencies lost over the last 50 years. My father once found a $100 bill under the table back in the 70s when he was waiting tables to finance his education. After waiting 2 weeks for anybody to claim it, they went to the bank to exchange it for Swiss Francs. They got over 400 CHF out of it. Today you’d get a meager 92 CHF.
Germany’s is way too low. How is S-EU supposed to rebalance like this?
Seems too low for most countries. With a target of 2%-3% each year it should be around 10% to 16% after 5 years.
🐺🐺🐺🐺
Fun fact: From 2008-2020, the total Swiss inflation rate was -0.5% according to the statistics of the Swiss government.
Dear Portugal you need to pump those numbers up or you will be kicked out of Eastern Europe.
And how many of those numbers undervalue the housing costs?
Price of land and rent have skyrocketed, fucking most of the newcomers on the market but let’s celebrate.
can you do one for the first 10 years after the euro?
every single map of europe looks the same.
And who’s had atleast corresponding pay rises in this time?
Turkey isn’t a European country.
Where’s the legend? These bands are whack.
Ukraine is not accounter for, because our inflation broke the scale.
17 comments
Source: https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=prc_hicp_midx&lang=en
2021 datas for the UK aren’t available in the Eurostat database, so I used [HICP datas](https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflation) in the ONS website.
By Europe I meant the countries that provide their datas to Eurostat, i.e. the ones in the EU, EFTA, the EU candidate countries which gave the stats and the UK due to its relevance and availability of harmonized datas.
HICP stands for Harmonised Index of Consumer Prices and it’s the main indicator of inflation used by the ECB and by Eurostat. Its basket of goods and services is a bit different from the Consumer Price Index but the difference is rather small, often there isn’t at all except in periods such as sales seasons.
The average for the Eurozone is +7,7%, for the EU is +9,0%, for the US (which provides its data in HICP as well) for a comparison is +12,8%.
Why did I choose the last 5 years? Two reasons: in the second half of 2016 inflation began picking up across Europe after several years of prices stagnation, also 5 years is a symbolic measure.
Some main statistical findings.
* The best performers are Greece and Switzerland, for quite different reasons. They are also the only countries in which the prices are still lower compared to their peak, respectively in 2012 and in 2008. In the first case the main responsible is the internal devalutation Greece witnessed in the last decade which made nominal wages fall and therefore allowing enterprises in some sectors to lower the prices (thanks to the lowered cost of the labour input) and at the same time avoiding prices hikes the domestic market wouldn’t be able to absorb and handle. Switzerland, which has a long history of low inflation, has got the Swiss Franc’s perfomance to thank and to a lesser extent its good productivity growth. Prices in Switzerland grew slightly more than 10% in the last 25 years (!), with the entirety of such growth being in the 2000s. The strength of the CHF, which has always revalued over the long term (to the delight of cross-border workers as well), drives capital and financial flows into Switzerland and keeps down the price of imports for the raw materials and semi-finished goods the country needs, even in the most inflationary periods worldwide, and Swiss industry with its very high value added is not harmed by revaluations.
* Another interesting case is Ireland, which has shown among the lowest inflation rate in the period despite being by far the best economic (and demographic) performer. That may be due to the sharp productivity increase that the country has witnessed. Gains in labour productivity allow enterprises to achieve the same output unit with a lower labour input, or an higher output with the same input. If wages don’t offset productivity growth, businesses can improve their profits without raising prices and therefore conquer higher market shares abroad.
* Inside Eurozone the countries which recorded the highest inflation rates are the BeNeLux and Austria, which are among the best performers in both economic and population growth. The same to a slight lesser extent holds for Germany. To reduce imbalances inside the EZ the Southern countries need an inflation rate structurally lower than the Northern ones, which has been slowly but steadily happening after the 2011-13 crisis (with the exception of Spain in the analyzed period, which enjoyed high GDP growth rates in the second half of 2010s, though). With a lower inflation rate and good productivity growth (another Southern EU’s Achilles’ heel) such countries can recover competitiveness.
* On average, of course not always, countries inside the EZ have lower inflation than countries outside of it thanks to Euro’s stability, or better put, that’s true for the countries which have tendentially devaluing currencies. The Baltics have high inflation rate but that can be easily explained by their great economic and wages growth. Croatia and Bulgaria have showed the lowest inflation rate in the East and that can be explained by their currencies being pegged to Euro but to some extent by their lower economic and demographic perfomance in relation to some neighbors. Slovakia’s inflation tend to be a bit lower than the rest of V4 despite having similar economic structures. It’s worth noting that the countries that showed the highest increases in consumer prices during this period had not done so in previous years. The V4 countries, Lithuania and Romania showed no increase at all from September 2012 to 2016. This is a clear fact that the growth of the economy in these countries and in certain regions full employment are beginning to pay off in terms of inflation.
* A low inflation may be a measure of satisfying Central Banks’ independence and in the EZ that is guaranteed by the ECB. Outside of it there are countries with sensible monetary policies such as the UK or Sweden not to mention Switzerland among countries that don’t have their currency pegged to Euro, and countries which have stronger political influences in policy-making. In the last weeks Czech Republic, Poland and Romania are following Hungary’s first step in hiking interest rates as inflation is beginning to bite, which is a positive sign of CBs’ independence and wary monetary policy but on the other hand it might decelerate the economic recovery which is currently threatened in the aforementioned countries by the semiconductors crunch in the automotive sector.
* The country outside any scale is Turkey. Despite the Turkish Lira having lost 70% of its value in the last 5 years (the Turkish Central Bank slashed the interest rate yesterday, yet again, btw), Turkish trade balance in goods and current account balance are still negative (though improved). This happens when higher wages – which follow the inflation rate – and producer prices (both due to higher wages and import prices) “eat” the competitive advantage provided by the currency devaluation and thus enabling a wage-price spiral. If a country has flexible exchange rate and wants to achieve substantial short to medium term competitiveness gains while a devaluation is going on, it still needs an internal devaluation, i.e. letting real wages fall, in this context. A textbook example of this is Italy with the constant Lira devaluations in the 1970s and 1980s which never provided trade surpluses versus the 1993-94 devaluation that actually worked, at the expense of real wages and labour income share that plummeted.
Inflation isn’t an extremely bad thing per se and could be a sign of an healthy economy as long it’s pushed by a growing economy and it gets constantly monitored by monetary authorities which have the duty to ensure its stability and that it doesn’t get out of hand. An high inflation can cause distorting effects in a country’s economy and above all it either brings losses in consumers’ purchase power as we all know or in competitiveness, which I wanted to highlight as it’s often an overlooked point.
Inflation has been picking up in 2021 as we all know. I believe the central banks should keep an eye or two on it and ensure medium to long term price stability, as inflation breeds inflation, yet I believe most of it to be transitory and don’t agree with some fearmongering which is being made (which could negatively affects expectations, that are fundamental) as far too many inflationary events are happening right now around the world – some may remain this way in the future, most of them don’t look like so – and we need to wait for the next year before evaluating the actual longer term inflation risks.
Thanks everyone for reading, any observation is welcome!
So why do we still have negative interest rates in the EU which just feed inflation?
Rip Turkey
we don’t join Eurozone so they can inflate forint into the deep
It’s incredible how much value some of the so-called hard currencies lost over the last 50 years. My father once found a $100 bill under the table back in the 70s when he was waiting tables to finance his education. After waiting 2 weeks for anybody to claim it, they went to the bank to exchange it for Swiss Francs. They got over 400 CHF out of it. Today you’d get a meager 92 CHF.
Germany’s is way too low. How is S-EU supposed to rebalance like this?
Seems too low for most countries. With a target of 2%-3% each year it should be around 10% to 16% after 5 years.
🐺🐺🐺🐺
Fun fact: From 2008-2020, the total Swiss inflation rate was -0.5% according to the statistics of the Swiss government.
Dear Portugal you need to pump those numbers up or you will be kicked out of Eastern Europe.
And how many of those numbers undervalue the housing costs?
Price of land and rent have skyrocketed, fucking most of the newcomers on the market but let’s celebrate.
can you do one for the first 10 years after the euro?
every single map of europe looks the same.
And who’s had atleast corresponding pay rises in this time?
Turkey isn’t a European country.
Where’s the legend? These bands are whack.
Ukraine is not accounter for, because our inflation broke the scale.