UK price rises have slowed compared to August July, but are still more than 40-year highs. But they are slow in comparison to some other parts of Europe.
In the UK there are several inflationary issues that are struggling – a weak balance sheet, low unemployment, an increasingly cashless society and Brexit – which we will discuss later, but one of the biggest drivers is the war in Ukraine.
The same must be said in the rest of Europe, especially in the closer geographical, cultural, economic and historical ties to Russia.
Prices in the Baltic states – Latvia, Lithuania and Estonia – are more than 20%, more than double the UK rate. All three were part of the former Soviet Union.
Another major price rise across Europe is also all the former Soviet-Eastern satellite states. Prices in the Czech Republic, Hungary and Poland increased by more than 10%.
Scroll through the charts below to see how this split has progressed since the war in Ukraine.
In the years before COVID, it was difficult to see a clear inflationary pattern for the former Eastern Bloc countries.
There was no clear difference between countries like Latvia, Lithuania and Estonia that were part of the Soviet Union, and others like Poland or the former Czechoslovakian countries that had been Soviet satellite states.
Rises and falls were sometimes higher or lower than the UK or EU average, but followed similar trends with no distinctive patterns. That’s why this chart looks so messy.
A similar story in later years. Prices fell in some regions and recovered in others, but the pattern between the different groups was not clear.
During the war in Ukraine, he opened a partition.
Those countries with the closest geographic, cultural, economic and historical ties to Russia had the highest levels of growth in Europe.
Douglas McWilliams, Vice President of the Center for Economic and Olx Praca Research (Cebr), says that this change is connected with the Russia-Ukraine war and related sanctions, but also due to the economic constitution of these countries.
“The Baltic states still have much greater connections with Russia than we do further west. You’ll notice if you go to these regions that many products are in Russian shops.
“I don’t know to what extent they are actually enforcing the sanctions, but they will be more difficult to accept at a time when they will create shortages and cause prices to rise.
“Also, in Eastern Europe, a greater proportion of the increase in food prices will be realized because there will be a lower standard of living in general and more of the costs of some in the necessities.
“It is the same as the lower income groups in this country in which food and energy form a higher proportion of their total expenditure, so they are the most affected by the rise in the price of these things.”
The lower income countries of Africa and Asia have not seen growth rates at the same levels as in Europe, although energy and food are increasing throughout the world, perhaps because of different diets or because of distance from war.
What about the countries of the UK?
It sits close to the middle of the UK among Western European countries.
Switzerland and France have managed to control inflation more than the rest of Europe, with prices rising faster in the Netherlands, Spain and Belgium than in the UK.
However, the UK has the highest growth rate in the G7 – the group of seven largest economies and liberal democracies.
Mr McWilliams said Switzerland had been able to keep prices low because agricultural protections meant their food was already more expensive than other countries. They are less affected as the result of international price rises.
“They also rely a lot on their hydroelectric power, so they are less exposed to gas. In France, they have a lot of nuclear power and they have subsidized energy prices and that has helped a lot.
“These subsidies will be too expensive in the long run, because France can bring nuclear power back on stream and produce energy cheaply.
“In the UK we really don’t know how long the subsidies will last [to be introduced in October] to be paid, and how wide the gap will be between the prices paid and the market.
“If there is a gap, he will add a loan in the same way, I give a provision, and we will have to pay off the debt in the long term. I assume the Bank of England will continue to give interest and we expect to see some recession over the next 12 months.
Why is inflation higher in the UK than other large economies?
Mr McWilliams said there were three key factors:
1. A scale made weak means more expensive
“Goes [the pound] It weakened slightly against the euro and did quite a lot against the dollar, and this means that international prices of all kinds have risen.”
2. A comparatively low level of unemployment pushes up the cost of labor
High unemployment levels are generally a good sign, although in the UK this is more caused by people leaving the workforce altogether – for example retiring or registering as long-term sick – than by taking more jobs, meaning productivity does not rise. so that the idleness goes down.
The level of activity in the UK is 48 years old, which is low for this country, but it is running close to the G7 average.
However, the lowest number of people working are of working age, and there have been more than 1.3m vacancies every month since the start of the year.
3. The move to a cashless economy
“I have a suspicion” [using less cash] It made the economy more inflationary because people didn’t immediately notice how much they were paying, so the resistance to growth weakened the rate,” said Mr McWilliams.
4. What about Brexit?
Some economists prefer to look at different countries in order of “core inflation,” which excludes things like energy and food, which are more seasonal and change regularly.
By that measure, the UK is doing worse, even than countries like the Netherlands which had a higher rate of inflation.
Sam Tombs, UK chief economist at economic research consultancy Pantheon Macroeconomics, says this argument is of little importance to Brexit.
Mr Tombs also said that the UK’s “relatively high growth rate is the result of most of the policies of modern governments”.
“The government has helped households cope with higher energy prices by giving them subsidies – which do not reduce commodity prices – rather than directly controlling energy prices, as so many other governments in Europe have done.”
“This will change from October, with the government already putting in a £2,500 price cap, so I doubt the UK will be out next year.”
Mr McWilliams agreed that the Brexit impact was likely to be small.
“Immigration post-Brexit is pretty much the same as it was before, although the mix is different. If you look at what’s in the price, it doesn’t follow that Brexit is the issue – Brexit doesn’t affect the industry. The price or the price of wheat.
“There can be no effect, but it is difficult to see good evidence, and it is not the most obvious factor.”
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