Europe struggles with higher inflation than the US📉📈Recent economic trends on both sides of the Atlantic have ignited concerns of growing divergence in economic fortunes and policy responses between Europe and the United States. While the U.S. witnessed a surge in inflation followed by a swift decline, Europe grapples with a stickier inflation problem.
📊In the US core CPI which reached multi-decade highs of 6.8% last year has fallen substantially to 4.7% in July. Conversely, Europe faces slower inflation moderation, with core inflation falling to only 5.3% from its peak of 5.7%. The UK is the absolute laggard with core inflation still near multi decade highs at 6.9%.
💵Wage growth has been the major driver behind this trend. Average hourly earnings in the US steadying at an annual pace of 4.3% for August. In contrast, In contrast, UK pay levels rose 8.2% in the second quarter. Eurozone hourly labour costs are expected to continue rising at close to 5%, near their all-time high.
🚨This divergence has raised concerns over substantial growth differential on both sides of the Atlantic in the next years. While growth in the UK and Europe weakens, the US has recorded a 2.1% GDP growth in Q2, raising hopes of a soft landing.