Is inflation accelerating in the US compared to the Eurozone?

Yes, for the main, No for the main title:

Figure 1: Monthly annual core inflation difference between US and Euro (blue), 2019-2021M02 average (red), 2021M03-2022M08 average (green). Inflation is calculated as differences in logarithms on CPI (US), HICP (Eurozone). HICP was seasonally modified with Census X-13, log shift, and modified X-11. The National Bureau of Economic Research identified peak-to-trough recession dates shaded in grey. Source: BLS and Eurostat via FRED, NBER, and author’s calculations.

The core inflation rate in the United States after the ARP rose significantly above the euro area – 2.2 percentage points, statistically significant at the level of 10%. One could interpret this as a very aggressive stimulus; Alternatively, one can view the recovery packages in the eurozone as not strong enough. In other words, it’s not like we get nothing with additional inflation.

Ultimately, in terms of consumer-facing inflation, the Eurozone has seen the same acceleration in inflation as the US. This is shown in the corresponding graph of key inflation differentials.

Figure 2: Month-to-month annual inflation difference between the US and the Eurozone (blue), 2019-2022M08 average (red). Inflation is calculated as differences in logarithms on CPI (US), HICP (Eurozone). HICP was seasonally modified with Census X-13, log shift, and modified X-11. The National Bureau of Economic Research identified peak-to-trough recession dates shaded in grey. Source: BLS and Eurostat via FRED, NBER, and author’s calculations.

Eurozone inflation has increased compared to the US with the jump in natural gas prices starting in June/July 2021. If one checks for a change in spreads in 2021 months from 2007, one will find that Eurozone inflation accelerated by 1.4 percentage points (Statistically significant at 10% level).

It is interesting to see what this means for consumer price levels. Normalizing to 2021M03 (ARP traffic), we have the following.

Figure 3: Eurozone-US record price level (blue). HICP was seasonally modified with Census X-13, log shift, and modified X-11. The National Bureau of Economic Research identified peak-to-trough recession dates shaded in grey. Source: BLS and Eurostat via FRED, NBER, and author’s calculations.

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