Inflation, or rising prices, is eating into household budgets in Europe and much of the western world due to the Covid pandemic and Russia’s illegal invasion of Ukraine.
The UK government has made tackling inflation its number one priority and there was some positive news on Tuesday when new data showed that price growth had slowed slightly to 7.9 per cent in June after remaining frozen on 8.7 per cent in May.
June’s figure was the lowest annual level of inflation since March 2022, prompting Jeremy Hunt, the chancellor, to say that finally the country is “moving in the right direction”.
Despite the better-than-forecast figures, Mr Hunt warned that the UK isn’t out of the woods yet, saying “we aren’t complacent and know that high prices are still a huge worry for families and businesses”.
Germany, France, Italy and Spain - Europe’s largest economies - are just a few of the other countries on the continent battling inflation. How is the UK faring when compared to its neighbours across the Channel?
Spain had the lowest level of inflation out of Europe’s five largest economies, recording 1.9 per cent in June, down from 3.2 per cent in May. Economists said the drop was due to falling energy and fuel prices.
France, meanwhile, had the second lowest level of inflation out of the five, recording 4.5 per cent in June, down from 5.1 per cent in the previous month. The drop was attributed to falling energy prices.
In joint third place were Italy and Germany, both of whom recorded an inflation rate of 6.5 for June.
Germany’s rate was up from 6.1 per cent in May and was the third consecutive rise. Economists said the price of food was the main driver of overall inflation in June.
The 6.4 per cent recorded in Italy was down from 7.6 per cent in May and economists there said the drop was mainly due to the drop in price of energy products and to a “lesser extent” processed food and alcohol.
The UK was last on 7.9 per cent. The Office for National Statistics said the drop in June was due to the falling price of petrol and diesel.
Heidi Karjalainen, a research economist at the Institute for Fiscal Studies, told The Independent that the UK figures for June suggested that while inflation remains high “we may have past the peal”.
“June’s lower than expected inflation rate was largely driven by falling fuel prices, but inflation for most other goods and services remained high,” she said.
“There is some good news as core and food inflation dipped in June, suggesting we are moving past their peak. And next month we finally expect to see energy prices falling as Ofgem’s energy tariff cap fell between June and July."
Inflation in the UK was 7.9 per cent in June— (PA Wire)
Although the UK has the highest level of inflation out of its main competitors, several countries on the continent have worse inflation.
Turkey recorded 38.2 per cent in June while Poland, Ukraine, Romania, Serbia, Hungary and Slovakia all logged double-digit figures.
Economists are reluctant to draw international comparisons on inflation because each country’s economy is different.
For example, the service sector - including finance, retail, and entertainment - dominates the UK economy and accounted for 82 per cent of output in 2021.
In Germany - Europe’s largest economy - industry is one of the main drivers of the economy and its share of gross value is 26.6 per cent, making it the highest among G7 countries, which includes the United States, Japan and Canada.
The strongest sectors in Germany are vehicle construction, electrical industry, engineering and chemical industry.
Germany also has a large service sector, although its 69.3 per cent accounts for slightly less of overall output when compared with the UK.
According to the IMF, Turkey has an upper-middle income mixed-market emerging economy and is among the world’s leading producers of agricultural products, textiles, motor vehicles, transportation equipment, construction materials, consumer electronics and home appliances.
Turkey, whose weak currency has come under further pressure since the reelection of president Tayyip Erdogan in May, has been battling inflation for years.
The country’s economic problems are driven by high private sector debt, persistent current account deficits and high unemployment have been exacerbated by macro-financial instability since August 2018.
The United States saw inflation drop to 3 per cent in June, down from 4 per cent in May. Some analysts have credited Washington’s decision to hike interest rates - the main lever central banks have in controlling inflation - more aggressively last year for its lower rate.
