The US's low inflation comes as a surprise. It is below the German standard even below Italy's. Inflation is only rising in Germany. That alone is cause for closer inspection.
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| Frankfurt, Germany |
The United States shocked the rest of the globe this week when it revealed that its inflation rate dropped to 3% in June, the lowest level in at least two years. Other nations are also reporting news that sounds good. For instance, the percentage has decreased to 1.0 percent in Luxembourg and to 1.6 percent in Spain.
Even in Italy, where extremely high inflation used to be a major problem, inflation is currently lower than in Germany. Only Germany, the sole member of the Eurozone, saw inflation rise in June, rising to 6.8 percent using the European way of calculating the Harmonized Index of Consumer Prices (HICP).
This is consistent with shoppers' observations that practically everything has recently grown more costly. The Federal Statistical Office reports that the annual rise in food costs was 13.7%. Soft fruit is an illustration: The price increase in this case was 16.5 percent. Quark cost 42.5 percent more, tomato ketchup 40.6 percent, and frozen fish fillet 25.6% more.
They are severe situations. However, prices for milk, beef, pizza, and orange juice all increased by 13.9 percent, 5.5 percent, and 17.1 percent, respectively. At least butter's price has decreased by 26.4 percent over the past 12 months, despite having previously climbed.
Economic experts refer to a "statistical base effect" as one of the causes of Germany's recent surge in inflation, which defies the general trend. With the fuel discount and the 9-euro ticket last year, the federal government artificially decreased the price level from June to August.
As a result, during these three months this year, price rise rates are automatically greater. According to Bankhaus Berenberg's chief economist Holger Schmieding, that accounts for approximately a percentage point of inflation. That approximately explains the recent discrepancy between the inflation rate in Germany and the average for the euro region, which was 5.5 percent.
But of course, it doesn't explain why inflation in our country hasn't yet reached levels akin to those that existed in the past in America or Spain. You need to look more closely at the current trends influencing inflation if you want to come closer to that.
As stated by Ruth Brand, President of the Federal Statistical Office, food was the main "price driver" in Germany. They cost 13.7 percent more in June than they did a year prior, however prices did somewhat fall by 0.2 percent from the prior month.
The statisticians assert that price dynamics are deteriorating. However, the year-over-year increase in food costs in other nations was occasionally far less pronounced. Additionally, it was 13.7% in France. However, it was just 6.3 percent in Spain and 5.7 percent in the US.
less damage caused by the conflict in the USA This is due to a number of factors. Overall, the war in Ukraine had less of an impact on the United States. On the other hand, governmental involvement lowered food costs in Spain, where the VAT on several basic goods was set to zero at the start of the year and was decreased for others.
On the other hand, decreasing oil and gas prices on the global market resulted in major relief for the energy sector globally. How much was obtained by consumers, however, appears to depend on taxation, other governmental actions, and the nature of the relevant marketplaces. The cost of energy decreased by 16.7% in the US, 24.9 in Spain, and 3% in France. On the other hand, they increased by 3% in Germany.
In Germany, the cost of natural gas has increased by 20.8 percent while the cost of heating oil has decreased by 36.5 percent. The providers in Germany appear to be hesitant to inform current consumers of declining gas prices.
American inflation rates are rising. According to Michael Holstein, chief economist of DZ Bank, "government interventions still play an important role due to the different development of energy prices in different countries." According to Karsten Junius, economist of Bank J. Safra Sarasin, "these have been particularly strong in the case of energy and food prices worldwide, as these often have a strong influence on voter sentiment."
Additionally, because mineral oil and fuel are taxed differently in various nations, the impact of declining oil prices on inflation varies. "In the US, lower oil prices are having a more direct impact on prices at the pump because they don't have our high petroleum tax," claims Schmieding. There, natural gas is typically less expensive than here.
However, it is arguably essential for the transatlantic comparison because inflation in America increased before it did in the eurozone and that the US Federal Reserve hiked interest rates before the ECB. In this regard, according to Commerzbank AG's Chief Economist and Divisional Board Member for Research Jörg Krämer, it is not unexpected that inflation in the US is now lower than in the euro region.
How service costs will change in light of increased salaries will now be a crucial concern. According to economist Holstein, "we have sharply rising prices for household-related services due to the rampant shortage of workers, especially in the trades." For instance, in Germany, "services for maintenance and repair of the apartment" rates increased by 15.7 percent in June. For instance, "work on heating and water heating systems" was one of them, with a price rise of 8.3 percent. This demonstrates how labor shortages and salary rises are already being amply reflected in the inflation rate, according to Holstein.
The author Christian Siedenbiedel is a German journalist currently working with the FAZ.
Source: FAZ