Could Europe end up with a worse inflation problem than America?

The new transatlantic divide


  • by
  • 01 19, 2023
  • in Finance & economics

down. On both sides of the Atlantic, falling energy costs are provoking sighs of relief. Price-watchers are now focused on core inflation, a measure that strips out volatile food and energy prices, and is usually much slower to rise—and more difficult to bring down. Since October, core inflation in the euro zone has been higher than in America. Could Europeans end up with a worse inflation problem than their transatlantic peers? Every economist knows Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon.” But the Nobel-prizewinner’s words do not seem to capture the current bout of inflation, where post-pandemic supply disruptions, fiscal splurges, an energy shock and labour shortages have created a near-perfect storm causing prices to soar. How fast inflation comes down may therefore depend not only on what central banks do but on how these factors—the disruptions, energy shock and wage rises—affect economies on either side of the Atlantic.

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