EPRS Admin By / August 5, 2022

Inflation generalisation index

Inflation generalisation index: combined weight of items in the euro area HICP inflation basket with inflation rates above 2 %, in %

Importantly, inflation has become much more broad-based (see Figure 1), as the share of items in the HICP product basket with inflation rates above 2 % has increased significantly. The latest data record three quarters of items above the inflation target of 2 %. Several factors explain these unprecedented levels of inflation, some of which affect certain EU countries more than others. Most significantly, the increase in energy prices continued to have a strong impact on headline inflation in all Member States, amid unparalleled sanctions on Russia following its invasion of Ukraine and a complete overhaul of EU energy policy to reduce dependency on Russian energy. EU economies are therefore likely to face heightened energy prices due to economic and political uncertainty, translating into more pronounced and simultaneously more persistent energy inflation. Almost half of the current inflation rate can be attributed to energy components (49 %), at a time when oil and gas prices are starting to translate into broader price dynamics (see Figure 2). In addition, food inflation also rose further, standing at 8.9 % in June, in part reflecting the importance of both Ukraine and Russia as producers of agricultural products.

Related Articles

Be the first to write a comment.

Leave a Reply