ECONOMY

Inflation linked to pandemic

inflation-linked-to-pandemic

The unprecedented and extensive economic support measures during the pandemic, as well as market and supply dislocations during the same period, are to blame for inflationary pressures in the eurozone and the United States, a report by Greek lender Eurobank’s economic analysis and global capital markets research division says.

The question is whether these inflationary trends will be temporary or will persist, says the report.

According to data for June 2021, inflation in the United States, at 5.4% year-on-year, is at a 13-year high, while structural inflation, which excludes energy and food prices, was 4.5%, the highest since September 1991. This was due to the steep rise in airline ticket and accommodation prices (24.6% and 15.0%, respectively), mainly as a result of the reopening of the economy, and the explosion in demand for used vehicles, both trucks and passenger cars, whose prices rose 45.2% year-on-year in June.

In the 19-member eurozone, inflation was significantly lower (2.2% year-on-year in June), but still the highest since October 2018, while the rise in structural inflation slowed down to 0.7% after several months, due to temporary factors.

The report notes that there are specific sectors where inflationary pressures are highest: Thus the prices for the transport of goods have increased about 60% since the start of the pandemic, industrial metals are up 77% and agricultural products and wheat have gained 67%.

The Eurobank report attributes part of the higher inflation to temporary factors, such as high energy prices, temporary supply and demand mismatches during the reopening of economies following extensive lockdowns, spending deferred during lockdowns and a rebound from previous price declines. It notes, however, that inflation can also be attributed to the unprecedented measures enacted to mitigate the effects of the Covid-19 pandemic, including quantitative easing and interest rate cuts and fiscal measures to prop up demand. There were also delays in production as the supply chains were disrupted.

The main concern of officials setting monetary policy is whether inflation will prove temporary or persistent, the report notes.