Europe fights inflation even as energy costs drop

As the European Union makes headway on energy, inflation in the food and services industries offsets any real economic progress.

In April, Europe’s inflation rate increased from 1.2% to 1.4%. Sure, that may not sound like much, but when you consider how many transactions the average consumer makes on a daily basis (fill up the gas tank, coffee break, lunch, etc.) – it adds up. The inflation rate has been under the European Central Bank’s 2% cap since February, and as long as it stays there, economists don’t foresee any catastrophes on the horizon.

However, with Europe stuck in an 18-month long recession, politicians are seeking ways to boost economic growth. President Mario Draghi has already said he’s willing to reduce lending rates if the economy continues to deteriorate. That would allow more small business to open, and hopefully stimulate consumer spending.

Janet Henry, primary economic adviser at HSBC Holdings, has hope for the future. “As long as the European Central Bank’s baseline scenario of some recovery in the second half of the year remains in place, I would be very surprised if they cut rates again over the next couple of months,” she says. “They need to see a further deterioration from where we are currently rather than the stabilization they expect to see around the middle of the year.”

The recession is expected to come to an end in Europe’s second quarter. According to a survey performed by Bloomberg, their economy should see a return to growth in as little as three months.

However, as the price of energy drops (0.2 % this month after a 0.4% drop in April), food, alcohol, and tobacco prices are on the RISE - 3.3% to be exact. The service industry has suffered from inflation as well. They saw an increase of 1.4% compared to last month.

So although Europeans may be paying a fraction of a penny less for energy, they’re making up for it at the market. Unless you expect people to give up drinking beer, smoking cigarettes, and gorging on junk food, which is even less likely than an immediate solution to the climate crisis.

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Europe fighting a losing battle against climate change

Europe has been at the forefront of the fight against global warming for decades now, going so far as to criticize the rest of the developed world – the United States especially – for not following their lead. Recently, however, the European Union has been victimized be inauspicious governing and ineffective legislation, and now find themselves fighting a losing battle.

One proposal under consideration would place a ‘carbon cap’ across the continent, allowing companies to save and trade their surplus of allotted pollution. This would grant companies an additional stream of revenue in hopes that, with that additional revenue, the company will invest in green-renovations for their manufacturing and corporate facilities.

But, as author John Steinbeck once wrote: “The best laid plans of mice and men, often go awry…”

The E.U. didn’t present a fully-fleshed out proposal. They allowed the demand for carbon permits dry up, and then voted down a rushed, patch-work relief plan. Any hope for continental-congruency in the plight against climate change has all but disappeared. Instead, individual regions will be responsible for drafting their own energy policies and passing their own legislation – an act of delegated democracy that has proven itself futile in the past. Most analysts place the blame on incompetent politicians hovering on the fence, too afraid to lose what little power they’ve been entrusted with. Their inability to present long-term solutions has set the entire union back who knows how far.

For example, Germany has suddenly closed several of its carbon-free nuclear power plants in an ‘all-or-nothing’ gamble on renewable energy. Though well-intentioned, the move has forced the country’s remaining power providers to burn more coal to pick up the slack.

Spain’s economy has suffered due to investments in ill-conceived energy projects. France continues to syphon through coal while (wisely) refusing to explore domestic fracking operations. This has contributed to creeping levels of carbon emissions across Europe, while countries like the United States have been able to reduce their overall CO2 levels.

The U.S.’s progress is due, partially, to an increased emphasis on vehicle fuel efficiency, a willingness to open power-plants near residential areas, and a curious courtship with natural gas. Hopefully the country will learn from Europe’s mistakes and enforce a strict, extensive cap on carbon emissions.

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