Leo Tolstoy’s observation that “all unhappy families are unhappy in their own way” applies to the decades-long inflation that countries around the world are experiencing. Headline inflation figures are increasingly similar – around 8% in the US and Europe – but the causes, consequences and treatment are still quite different. In particular, the United States has higher underlying inflation, which is potentially more persistent and is appropriately addressed by aggressive monetary tightening. By contrast, more European inflation is imported, making it more painful than US inflation, but also likely more transitory, and the European Central Bank should therefore adopt a relatively muted response.
The United States has recorded about 3 percentage points of cumulative inflation more than the euro zone since the start of the pandemic. But inflation peaked in March in the United States and is expected to continue to decline, while inflation rates have risen in Europe. In the first four months of the year, inflation rose at an annualized rate of 12% in Europe compared to 9% in the United States