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Islands In The Sun: European Inflation Unemployment

Time:2017-08-01 07:29Shoes websites Click:

Islands european inflation Unemployment

Inflation in Europe was in July 2017 once again underwhelming. Eurostat’s HICP inflation index grew at a 1.3% annual rate for the second straight month. Other than for February 2017, the inflation rate has been less than the ECB’s 2% target for four and a half years. During that time, Europe’s central bank has vastly expanded its liquidity facilities (twice) and its balance sheet (PSPP, or QE).

Core inflation, or HICP less energy, food, tobacco, and alcohol prices, rose at a 1.2% rate for the second time this year. That level of price change is the highest since 2013, which has for many economists confirmed the first part (“hawkish”) of Mario Draghi’s apparent flip flop. But the core rate hasn’t been 2% since November 2008, and hasn’t been close to the target since, unsurprisingly, December 2011.

Islands In The Sun: European Inflation Unemployment

Islands In The Sun: European Inflation Unemployment

Islands In The Sun: European Inflation Unemployment

A good part of the reason economists are encouraged by at least the direction of these inflation estimates is unemployment. As in the United States, the unemployment rate is falling, which gives them a sense of a moving recovery. The further expected reduction in labor market slack should therefore increase competition for workers, raise wages, and then finally push up inflation rates in the near future to successful policy completion. The ECB will then be vindicated and everything goes back to normal, even if a decade afterward.

Examining unemployment data, however, one actually comes away with the opposite sense. The rate is falling, to be sure, but the manner in which it is indicates instead why Europe’s economy remains far from healing, and ends up adding to the negative impression left by inflation estimates.

As of Q1 2017 (Eurostat’s Q2 estimates are not yet available), the official unemployment rate for the EA19 countries was 9.9%. That’s down from a high of 12.5% reached during Q1 2013 in the thick of re-recession. This reduction in level corresponds with positive GDP results, clearly suggesting that at the very least Europe’s economy is not still contracting.

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