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A Transatlantic Divide?
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A Transatlantic Divide?

Transitory inflation in Europe but persistent in the US

Daniel Gros and Farzaneh Shamsfakhr
CEPS, 2021
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7

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The story of inflation in the 2020s pandemic recovery looks to be a tale of two continents. While some high-impact but temporary readjustments are at work in both Europe and the United States, the concern is that prices might continue to rise in America but not in Europe. In this rigorous yet accessible analysis, researchers Daniel Gros and Farzaneh Shamsfakhr eliminate the noise in headline rates to reveal a truer picture of inflation.

Summary

An inflationary disconnect between Europe and the United States is apparent.

Inflation has been on the rise both in the United States and Europe, with rates exceeding target goals of 2% as well as the modest increases typical of the 2010s. But these headline leaps reflect significant economic distortions; namely, the COVID-19 recession and the abrupt surge in energy prices during the recovery. A broader timeframe is required to see this inflation surge in its proper context and to determine if price and cost increases will persist.

The euro zone’s Harmonized...

About the Authors

Economist Daniel Gros and researcher Farzaneh Shamsfakhr are with the Centre for European Policy Studies.

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