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A Transatlantic Divide?

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A Transatlantic Divide?

Transitory inflation in Europe but persistent in the US

CEPS,

5 min read
3 take-aways
Audio & text

What's inside?

Different cost dynamics are driving inflation in Europe and the United States.

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Editorial Rating

7

Qualities

  • Analytical
  • Overview
  • Concrete Examples

Recommendation

The story of inflation in the 2020s pandemic recovery looks to be a tale of two continents. While some high-impact but temporary readjustments are at work in both Europe and the United States, the concern is that prices might continue to rise in America but not in Europe. In this rigorous yet accessible analysis, researchers Daniel Gros and Farzaneh Shamsfakhr eliminate the noise in headline rates to reveal a truer picture of inflation.

Summary

An inflationary disconnect between Europe and the United States is apparent.

Inflation has been on the rise both in the United States and Europe, with rates exceeding target goals of 2% as well as the modest increases typical of the 2010s. But these headline leaps reflect significant economic distortions; namely, the COVID-19 recession and the abrupt surge in energy prices during the recovery. A broader timeframe is required to see this inflation surge in its proper context and to determine if price and cost increases will persist.

The euro zone’s Harmonized...

About the Authors

Economist Daniel Gros and researcher Farzaneh Shamsfakhr are with the Centre for European Policy Studies.

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    D. F. 2 years ago
    The summary is not correct.

    For example, it states "In Europe, owner-occupied housing costs do not figure in consumption numbers, yet are a critical component in the United States."

    This makes no sense. What it should say is "In Europe, owner-occupied housing costs do not figure in consumer inflation numbers, or the consumer inflation price basket ..."

    There are other problems with the summary as well. The person who did the summary clearly didn't understand the content of the study.
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      2 years ago
      Hello, and thank you for your comment. The article refers to the “consumption price index,” and so we’ve amended the abstract to reflect that the costs are not measured in inflation statistics. Thank you again for your careful reading and for bringing this to our attention.
      Best regards,
      Gabriella Deponte
      Managing Editor