It will take time to see inflation that was before the pandemic in Europe, says economist

Eurozone inflation reached 8.9% in July, well above the ECB’s 2.0% target. And Roberto Attuch, economist and CEO of OHMResearch, in an interview with CNN stated that it will take some time to see inflation that was before the pandemic in Europe, also at 2%.

He explained that three reasons can – if possible – reduce the high inflation: how fast prices will also fall in the US, “we had a positive surprise in both the US retail and wholesale data”.

The second and third points are: when China will learn to live with Covid-19, the country has reduced interest rates as the coronavirus puts the economy in check; and what will happen to the cost of energy in Europe, “[principal aspecto] that pushed inflation in the region”.

In almost a year, Europe lost half of its aluminum and zinc production capacity because the price of energy is high. Inventories are practically empty.

Thus, the expert says that “it will take a while” for inflation to reduce. That’s because it doesn’t have the deflationary effect of China, the Fed has already given the message that interest rates will stay high for a while and the price of energy has risen to high levels in the region.

“The interest rates are not enough for you to lower inflation”, said the expert.

Heat

Another aspect that also affected prices in Europe was the heat, said Attuch. Europe has reached record temperatures in recent weeks.

At least 21 European countries issued a heat alert this week, amid soaring summer temperatures across the continent. UK thermometers registered over 40°C, a historic record for the country.

“The heat zones have only increased the demand for energy, with air conditioning [por exemplo]. And the situation was so dramatic that France, which uses nuclear energy, was unable to cool the reactors because the rivers were too hot.”