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I included these last three charts because I've heard so much in the last few weeks about how inflation is high in Europe and so we should blame fiscal policy (i.e. actions of Congress) for inflation. Inflation is high in Europe in elsewhere but these charts show why these areas are different.
- Services inflation in the US greatly exceeds Europe. Inflation rates here are much high because of higher wage growth, and this is drive in part by monetary policy but largely by policy action like stimulus or infrastructure spending. European nations did not commit the same level of pandemic relief that the US did.
- Goods minus services - the US and the EU are about the same. This is the portion of inflation that can be explained by supply chain and covid-related issues. When people say EU and US inflation is about the same (it's not) this is the thing they are referring to.
- Rental/property appreciation. There has been property pricing appreciation in Europe, but not nearly at the level of the US. This is almost solely a monetary policy issue, e.g. printing money like drunken sailors. The rapid expansion of the money supply is primarily responsible for price appreciation.
That's how two areas can have high inflation yet still have very different mechanisms govern how inflation is hitting their markets. It also worth noting that as the Fed raises interest rates, it makes US goods more expensive, creating additional inflation in those markets even as it goes down here.
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