The European economy traditionally follows that of the United States. According to BNR’s in-house economist Han de Jong, the fact that inflation in America has now decreased and interest rates have not increased means that the flag cannot fly. European inflation is still much higher than that of the US and the latest inflation reading from the Netherlands was disappointing.
From 1 July, the temporary reduction in excise duties on fuel will be revoked, with a consequent increase in the price at the pump. Furthermore, wage increases in collective bargaining agreements are currently nothing short of spectacular. Where the wage increase in collective bargaining agreements was 2.6 percent last year, it is currently no less than 8.4 percent. “Obviously I don’t blame anyone for a higher salary, but it’s really too high to end up with 2 percent inflation.”
“Obviously I don’t blame anyone for a higher salary, but it’s really too high to end up with 2% inflation.”
Furthermore, according to De Jong, there are some things to say about the economic situation in the United States. The Federal Reserve decided not to raise interest rates last week as inflation fell sharply. According to De Jong, the economic picture currently appears positive, but there are indicators that call for caution. “While central banks claimed last year that the rise in inflation was temporary, I would now argue that the forces now depressing inflation are temporary.”
The government is blocking the Fed
The sharp decline in inflation in the United States in recent times is mainly due to the decline in absolute terms of energy prices. While inflation may continue to fall as a result, this process cannot continue indefinitely. In the long run, according to De Jong, recent wage increases make medium-term inflation of 2% unlikely. In addition, the US government’s funding gap is growing rapidly. So, on the one hand, the US government stimulates the economy with big spending, while the Fed wants to slow it down with higher interest rates. “You could actually say that the US government is bugging the Fed with this.”
“You could actually say the US government is bugging the Fed with this”
China is disappointing
Unlike the ECB, the Chinese central bank is lowering interest rates because it is not dealing with inflation, but with disappointing growth. After the very strict lockdowns in China, a strong economic recovery was expected. The fact that interest rates are now being cut there indicates that this has not happened. De Jong: “Growth in China is simply disappointing”.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
