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In the euro zone, inflation is falling, but consumption and growth are flagging


This time, the reflux is clear. In May, inflation in the euro zone (year on year) was 6.1%, against 7% the previous month and a peak of 10.1% in November, according to data published Thursday 1er June by Eurostat, the European statistical institute. France (6%) and Germany (6.3%) are within the European average, Italy (8.1%) and the three Baltic countries (10% to 12%) are above, while Spain (2.9%) and Belgium (2.7%) are now clearly below, but all are experiencing the same trend towards calm. “Finally a surprise on the side of inflation, which is falling”exclaims Mateusz Urban, of Oxford Economics.

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The reasons for this are mainly mechanical, following the decline in energy prices, but it nevertheless offers a welcome breather to European households. Because, moreover, all the economic signals are turning red: Germany has officially entered recession, household consumption is at half mast, and industrial production is falling sharply.

“Growth in the euro zone has been sustained because imports have fallen, which mechanically improves the trade balance, points out Nicolas Goetzmann, economist at Financière de la Cité, a management company. But for purchasing power and households, it’s a recession. »

signs of relaxation

In detail, the slowdown in inflation recorded in May is mainly due to the fall in energy prices, down 1.7% over twelve months. The price of a barrel of Brent, which had exceeded 110 dollars, is now around 72 dollars. For gas, after soaring this summer to more than 300 euros per megawatt hour, it is trading today at 27 euros.

Gradually, this historical energy shock is transmitted to the economic system, starting with food, which uses gas and oil at all levels − fertilizers, fuel for tractors, heating in greenhouses… For the moment, despite a slight decline, food inflation remains very high, at 13.4% in May.

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On the other hand, elsewhere, there are signs of relaxation. An index closely followed by the European Central Bank, the increase in the price of services rose from 5.2% in April to 5% in May. So-called “core” inflation (excluding energy and food) also slowed, from 5.6% to 5.3%.

Despite this slight improvement, the price shock has lowered purchasing power and has caused a sharp economic slowdown over the past six months, which seems to have worsened in recent weeks. “Compared to the end of 2019, before the pandemic, real consumption is down 0.9% in the euro zone, while it is up 8.5% in the United States, stresses Mr. Goetzmann. It’s as if we had had four years of stagnation, while the United States has returned to its pre-Covid trend, erasing the shock of the pandemic. »

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