The indicator on which all governments have their eyes fixed at the start of the year is inflation. Consumer prices in France rose by 2.8% over the whole of 2021, according to the final index published on Friday January 14 by INSEE. For the euro zone as a whole, the figure is 5%, well above the central bank’s target of 2%.
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In the United States, the increase is even stronger, with a 7% price increase in 2021. The subject has become highly political there. Such a waltz of labels had not been observed since 1982.
“An overstimulation of the economy”
If the surge in inflation is more brutal in the United States than in Europe, this is explained by the greater scale of the stimulus plans. As of March 2020, a first plan of 2,000 billion dollars was voted, followed by a second of 900 billion in December. Then the new President-elect Joe Biden had a third plan of 1,900 billion adopted in March 2021, so that in the space of a year, nearly 5,000 billion have thus been injected into the economy.
“In the United States, the demand shock was greater than in Europe because we had an over-stimulation of the economy under the effect of successive stimulus plans. This demand shock created a price dynamic that got carried away”, analyzes Sebastian Paris Horvitz, director of economic research at La Banque Postale Asset Management (LBPAM).
These plans have notably included an increase in unemployment benefits and the sending of checks to 80% of American households. A good part of this aid went towards consumption, and this at the very time when the distribution circuits were disrupted by the pandemic.
The price-wage spiral
The rise in prices tends to last. A risk is now emerging in the United States: that of seeing employees ask for wage increases, which will then have to be passed on in prices by employers. “In the third quarter of 2021, we saw that wages increased sharply, by 3.7%, while the cost of labor was very stable before. And this increase continued in the fourth quarter, even if we do not yet have the figure, notes Sebastian Paris Horvitz. We are therefore faced with the risk of a price-wage spiral, even if it is not yet certain that this mechanism will take hold. »
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The European recovery plans have been more modest, around 3,000 billion euros if we combine all the support measures taken by the 27 governments since the outbreak of the crisis. There are a number of social shock absorbers in Europe which have played their part, so that it has not been necessary to send money directly to European households. The aid has instead focused on companies in the sectors most in difficulty, in order to avoid layoffs and bankruptcy filings.
Most European employees have been able to keep their jobs – unlike what happened in the United States, where there have been many layoffs – and these European employees have therefore retained their level of remuneration. The rise in prices has not yet provoked a social movement in favor of higher wages.
Another explanatory factor: a good part of the rise in prices observed last year came from the cost of energy. However, this increase is transmitted more quickly to American consumers. “In Europe, there are firewalls because it applies higher taxes, remarks the economist of La Banque Postale. They mathematically absorb part of the rise, whereas in the United States, when oil rises, it shows immediately at the pumps. »
This stronger surge in inflation in the United States should lead to a rise in interest rates in 2022, which will undoubtedly be faster, with the risk of slowing down growth. In Europe, the President of the Central Bank Christine Lagarde predicts rather than “the engines of inflation are expected to lose steam over the course of the year”, which does not suggest a rise in rates in the coming months.