Europe | The colors of inflation

Summary

Inflation is at record highs and is expected to remain at high levels, involving a major challenge for Governments and monetary authorities. The fight against climate change and the transition to a more sustainable economy would have contributed, in part, to the increase in energy prices.

Key points

• Key points:
• In June, Eurozone inflation hit 8.6%, half a percentage point higher than in May and mainly due to energy prices, which rose by 41.9%.
• Nine countries in the euro area have registered double-digit inflation rates. In Spain, inflation stood at 10.2%, according to the National Statistics Institute (INE), the highest rate since 1985.
• Isabel Schnabel, a member of the European Central Bank's Executive Board, noted that as we build a more sustainable economy, we face a new era of "energy" inflation in which three shocks coexist.
• Firstly, "climate" inflation, linked to the costs generated by climate change, such as droughts or floods. Secondly, "fossil" inflation, linked to dependence on fossil fuels, and finally "green" inflation, which refers to the increase in the cost of materials and processes needed for the transition to a more sustainable economy.
• Until now, the impact of "green" inflation on consumer prices seems to be moderate and lower than that of "fossil" inflation, which would explain a large part of the rebound in energy prices.

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