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Economy in Brief

Divergent Inflation Trends in the U.K. and the Euro Zone
by Louise Curley June 14, 2005

May Inflation rates in four European countries--France, Finland, Spain and the U.K. were released today. The consumer price index in the U.K. rose 1.9% continuing at the seven year high rate reached in March. In each of the Euro Zone countries the rate of inflation declined. In France from 1.9% in April to 1.6% in May, in Spain from 3.5% to 3.0% and in Finland from 1.2$ to 0.6%.

The contrast between inflation rates in the U.K. and in the Euro Zone as a whole is shown in the first chart. We have used the Flash Estimate series for the Euro Zone since it contains data for May while the overall index does not. The Flash Estimate series is a fairly good proxy for the actual series. The correlation between the two series is .86. (The actual May data for the overall index will be available on Thursday of this week.) In spite of its higher growth rate, the U. K. has had a lower inflation rate than the Euro Zone, but now the U. K. rate appears to be increasing while that in the Euro Zone is declining.

The rate of inflation within the Euro Zone has varied widely. Two of the countries reporting data today--Finland and Spain--represent two extremes and different trends in the rate of inflation as shown in the second chart. The trend in the relatively high rate of inflation in Spain appears to be stabilizing or decelerating, while the trend in the low rate of inflation in Finland shows some signs of increasing.

Year over Year Change in CPI May 05 Apr 05 Mar 04 Feb 05 Jan 05  2004    2003  2002
Euro Zone Flash Estimate 2.00 2.10 2.10 2.00 2.10 n.a. n.a. n.a.
Euro Zone  Overall Index n.a. 2.08 2.09 2.10 1.93 2.14 2.07 2.25
United Kingdom 1.89 1.89 1.90 1.63 1.63 1.34 1.36 1.27
France 1.63 1.91 1.91 1.73 1.46 2.13 2.14 1.88
Spain 2.99 3.46 3.47 3.26 3.17 3.05 3.03 3.53
Finland 0.62 1.15 0.88 0.00 -0.14 0.14 1.30 2.01
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