Expert insight

In America and Europe, higher rates for longer

May 04, 2023

A three-panel chart shows measures of inflation in the United States and the euro area. The first panel shows year-over-rear rates of percentage change in headline inflation measures. In both areas, those rates hovered mostly in the 1 percent to 2 percent range in 2019 and early 2020 before falling to near zero in the middle of 2020 and, for some months, slightly negative in the euro area in the latter stages of 2020. At the beginning of 2021, inflation began to surge in both the U.S. and the euro area. It continued to rise until it peaked at about 9 percent in the U.S. in mid-2022 and at about 10 percent in the euro area in late 2022. Since they peak, year-over-year rates of change in headline inflation measures have fallen meaningfully.  The second and third panels of the chart show how much of the headline rates of inflation in both the U.S. and the euro area have owed since 2019 to four components—services, food, energy, and core goods. In both regions, the sources of inflation have been as volatile as the headline measures. In early 2023, roughly three-quarters of the rate of U.S. inflation was caused by changing service prices. In the euro area most recently, the rate of inflation was caused about 50 percent by changing food prices and about 50 percent by a combination of changing prices for energy and services.


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