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Economy in Brief

Inflation in All of Europe Higher with Energy Price Boost
by Carol Stone June 16, 2004

Fuel costs are pushing up consumer prices in Europe now as well as in the US. May data for the new grouping, the Euro-Zone-25, show a significant acceleration of year-on-year CPI gains over the last two months. The 2.5% reading for May is up 0.9% over the rate for March and is the highest since March 2002. We noted last week a similar move in Germany alone.

While energy is a main source of the current pick-up, other segments are pushing on the year-over-year pace, health care and tobacco prices most notably. These costs have a heavy weight of government regulation. But other more market-sensitive prices remain soft for all of Europe, as we described last week for Germany. We illustrate with a selection of various categories in the table below. Home furnishings and supplies are rising very slowly, and clothing prices have fallen every month so far this year, a most impressive performance for a 12-month rate of change. Even the hotel and restaurant business has generally sustained its recent inflation pace; these prices tend to run higher than overall prices anyway, but they accelerated only very modestly in May.

We include as well in the table and graph the rate for the "old" Euro-15 group. This CPI pace has not picked up quite as much in April and May as the new 25-member total, indicating that the new member nations have added somewhat to the recent inflation experience. However, this is not always the case. During 2002, for instance, inflation in those countries ran lower than in the more established European economies. This latter development underscores the remarkable progress these nations have made in controlling inflation compared with just a few years ago. In the mid-1990s, when they started compiling these harmonized CPI figures, their inflation ran significantly faster. It has worked lower very rapidly, so it is now, on the whole, comparable to that in the rest of Europe.

Harmonized Consumer Price Indexes: Year/Year % Change May 2004 Apr 2004 Mar 2004 2003 2002 2001
EU-15 2.2 1.8 1.6 1.8 2.2 1.9
EU-25 2.5 2.0 1.6 1.9 2.1 2.1
Transportation fuels & lubricants 11.2 2.6 -2.7 1.1 7.0 -9.9
  Electricity, gas, other 3.7 2.4 0.6 3.3 1.8 1.3
  House furnishings,  etc. 0.5 0.6 0.6 0.7 1.1 1.9
  Clothing -0.5 -0.6 -0.7 -0.5 0.8 1.9
 Hotels, restaurants, etc. 3.1 2.9 2.9 2.9 4.2 3.8
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