European Inflation Is Not American Inflation

PARIS – Eurozone consumer prices increased by 5% year on year in December, while the number of Google searches for “inflation” has recently risen threefold in Germany and tenfold in France. So, at first glance, it is difficult to avoid the impression that Europe – like the United States, where annual price growth has hit 7% – will have a tough time taming the inflation dragon.

Having dismissed concerns about rising prices for too long on the grounds that the main risk was deflation, the European Central Bank, like the US Federal Reserve, is now on the defensive. Critics accuse the ECB of being dangerously behind the inflation curve, and of having neglected its overriding mandate: to ensure price stability. Some claim that, after years of adventurous quantitative easing, the day of reckoning has arrived.

Both the Fed and the ECB can certainly be blamed for not having spotted the current price surge early enough. But that is no reason to lump together the US and the eurozone. Contrary to the widespread belief that inflation is back for good on both sides of the Atlantic, the outlook for the US is fundamentally worse, for three reasons.

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