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Inflation across the 19 countries sharing the euro currency sped up to 8.9 percent in July from 8.6 percent the month before, according to Eurostat, the European Union’s statistics agency.

In July 2021, the rate was 2.2 percent. 

Energy prices rose 4.02 percentage points. Food, alcohol, and tobacco tacked on 2.8 percentage points. 

France and Malta fared best, with prices rising 6.8 percent. Inflation was the worst among the small Baltic nations bordering Russia. Costs jumped 23.2 percent in Estonia, 21.3 percent in Latvia, and 20.9 percent in Lithuania.

Russia has been the chief trading partner for all three, even though it banned food imports from the three countries in 2014. 

The three Baltic states have enacted NATO’s sanctions against Russia after it attacked Ukraine in February. 

Among all 27 countries in the European Union, inflation ran at 9.8 percent last month, ticking up from 9.6 percent in June and almost four times the 2.5-percent rate that prevailed a year earlier.

TRENDPOST: Like the U.S. Federal Reserve, the European Central Bank (ECB) not only waited too long to raise interest rates in the face of galloping inflation, but it also refused even to acknowledge it was a danger.

Through much of 2020, Europe’s inflation rate was negative. When it ticked up to 1.6 percent in April 2021, ECB president Christine Lagarde shrugged it off.

Rising prices “are of a temporary nature” and inflation will return to modest levels in 2022, she said in comments quoted by the Financial Times. 

“Underlying factors and fundamentals are certainly not there to let us… forecast that inflation will stay at these levels,” she said.

By September, inflation’s pace had more than doubled to 3.4 percent but Lagarde was unmoved, echoing the U.S. Federal Reserve’s position that rising prices were a blip caused by tangled supply chains.

Wait a while, those kinks will sort themselves out, and prices will deflate like a leaky balloon, she assured Europeans.

“After doing a lot of soul-searching” about its view that inflation will ease next year, the bank’s policy committee decided to leave policies unchanged, including its benchmark interest rate of -.50 percent.

Lagarde also made a commitment that the ECB would not raise the interest rate any time in 2022.

Holding to that view, in late November Lagarde declared that it would be “wrong” to raise interest rates now because inflation will begin to cool by the time the new rates would have a chance to impact the economy.

Last December, Lagarde went farther out on her limb, predicting that inflation would fall to the bank’s 2-percent target rate by the end of 2022 and settle at 1.8 percent through 2023 and 2024. 

Two months later, in February 2022, Philip Lane, the ECB’s chief economist, began to turn the ship around.

Inflation in the Eurozone is unlikely to fall to the bank’s 2-percent target rate until at least 2024, he said.

Shortly after, Lagarde and other bank officials began hedging their comments, resulting in a comment in the spring to lift interest rates.

In June, the ECB took its interest rate out of negative territory for the first time since 2014, raising it to zero with hints that another increase will come in September.

TREND FORECAST: Lifting interest rates from -0.50 percent to zero has only symbolic value and even very little of that.

The ECB has begun to raise rates far too late to take hold of inflation and so has surrendered its role in controlling price increases.

As a result, inflation will continue to weave itself through Europe’s economy until consumers simply can no longer afford to buy things, at which point prices will stop rising, or even fall, out of necessity.

For central banks to actively wrestle down inflation, they must follow Mexico’s lead and raise their key rates close to, or even above, inflation.

However, the ECB and U.S. Federal Reserve will be unable to do that any time soon, now that inflation is around 9 percent in Europe and the U.S.

To boost interest rates close to 9 percent quickly would either crash the economy into a severe recession or worse.

Therefore, the Fed and ECB will continue to nudge rates slowly upward until they reach the “neutral” level at which inflation begins to respond while the economy keeps humming.

Barring unforeseeable events, that will not happen until at least mid- to late 2023.


Inflation in Britain galloped at 10.1 percent in July, year over year, easily surpassing June’s 9.4-percent rate.

The rate was not only the worst in 40 years but also the fastest pace clocked among G7 countries, which include Canada, France, Germany, Italy, Japan, the U.K., and U.S., since prices began surging early in 2021.

The culprit is natural gas: prices across Europe have more than doubled since 1 May, thanks in large measure to the Ukraine war and Western sanctions.

Gas prices on the continent began rocketing up last fall as Russia cut natural gas deliveries to Europe as a political pressure tactic. Prices more than doubled in 2021’s final quarter.

Also in Britain, this spring the government raised the price limit that utilities are allowed to charge customers for natural gas.

The cap is due to rise again in October, this time adding as much as another 70 percent to utility bills, which could send the U.K.’s inflation rate to 13 percent by January, according to the Bank of England.

Wages grew at less than half inflation’s speed in July, adding 4.7 percent, which is still better than the 4.1 percent by which paychecks increased during the three months ending 31 May.

As a result, real wages shrank by 4.1 percent in July, the sharpest contraction since the statistics office began recording the number in 2001, the agency said.

The resulting damage to consumer spending could dent the economy more seriously than the Bank of England has predicted, The Wall Street Journal warned.

The economic wreckage of the war and sanctions is not confined to Britain.

Last week in Germany, Europe’s largest economy, the government slashed the value-added tax on natural gas from 19 percent to 7 to help take price pressure off consumers.

The reduction came in response to the European Union’s decision to impose a surcharge on natural gas to help utilities pay the extra cost of replacing the gas that Russia is no longer delivering to Europe.

The surcharge is figured at €.2419 per kilowatt-hour and is estimated to cost the average German household about another €480 per year.

“We expect the combined drag of a squeeze on purchasing power and depressed [consumer] sentiment to tip [Europe] into recession this year,” JPMorgan analysts wrote in a note to clients.

TREND FORECAST: As we have noted last week in “Mexico’s Central Bank Sets Record-High Interest Rate” (16 Aug 2022), the U.S., EU and U.K., which have inflation rates at or near Mexico’s, have left their interest rates far below the Mexican level. 

For example, the U.K.’s inflation rate is expected to hit 13 percent this year. However, the Bank of England’s policy rate is just 1.75 percent.

In contrast, Mexico’s inflation rate is expected to reach 10 percent this year and the central bank has already set its key rate above inflation’s current pace in an attempt to head off worse damage later.

Western nations’ central banks will do all they can to keep pumping in monetary methadone to keep the money junkies on their high and artificially stimulate failing economies. 

Thus, minor interest rises in those nations are on the near horizon but will have only incremental impacts on inflation, which will continue expanding well into next year and quite possibly beyond. 

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