The Strategist

The European Union marks record inflation

09/03/2018 - 15:38

Price increases in the European Union countries reached a five-year high: inflation amounted to 2.1 percent in July this year, reports Eurostat. These are already adjusted data, confirming the first predictions of economists. Thus, the EU statistical office marked a record of the last five and a half years (the last time inflation was higher was in December 2012). The achieved level slightly exceeds the medium-term goal set by the European Central Bank (ECB) equal to two percent.

The growth of prices across the European Union has been observed for the third month in a row: in June 2018 inflation was 2 percent, in May - 1.9. Especially significant was the increase in prices in the energy sector: the growth averaged 9.5 percent over the EU compared with July 2017. Food products went up by 2.5%, services - by 1.4, industrial products rose by only 0.5%.

Excluding energy, food, alcohol and tobacco, the prices level in the European Union in July 2018 was 1.1 percent higher than in July 2017, which confirmed forecasts of analysts. From their point of view, this indicator creates a fairer picture of inflation, as the level of prices for energy carriers and products directly dependent on them (in particular, food products) are subject to sharper fluctuations.

In recent years, the European Central Bank has been concerned about stagnation of prices in the euro area and overwhelming absence of inflation, which established as a result of the debt crisis. The goal was to raise inflation to a level of 2 percent. It is believed that low stable inflation is useful for the economy and stimulates its growth due to development of production and increased consumption.

At the end of this year, due to the stability of inflation indicators, the ECB intends to make certain indulgences in its own tough financial policy, in which interest on bank deposits has reached a historical minimum periodically dropping to negative. A low interest rate hurts those who have financial surpluses: keeping funds on bank deposits becomes completely unprofitable, with a minimal percentage of any possible income swept by inflation. Be it current 2.1 percent or “clear” 1.1 percent, virtually no reliable European Union bank offers a more favorable rate on deposits.