European officials hope the peak in inflation is around the corner. Sadly, this optimism will probably prove unfounded
Save time by listening to our audio articles as you multitaskOptimists among them point out that the euro zone implemented no major fiscal stimulus after the covid-19 pandemic, unlike America, which means inflation has been driven by supply shocks and energy prices, rather than an. Recent spending packages in Europe have sought to cushion the blow from eye-watering energy prices, not stimulate spending.
Sadly, the optimism will probably prove unfounded. Lower energy prices take time to feed through to consumers. Most are still seeing whopping rises. France has the lowest inflation in the bloc, at 7.1% in October, in part because the government has capped gas and electricity prices. Next year, however, prices will be allowed to increase by 15%, adding to inflation. In Germany, many households have long-term contracts that are gradually renewed to reflect higher prices.
Wage rises are likely to add to inflation. So far, European pay has increased little. Unlike in America, six in ten workers have collective-bargaining agreements, which tend to run for a year or more—meaning it takes time for economic conditions to influence their pay. Trade-union negotiators have limited demands, aware that a wage-price spiral would come back to haunt them. But negotiators’ patience is beginning to wear thin.
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