Inflation rate in Europe 2022: how August UK CPI compares to EU countries - including France and Germany
Under Boris Johnson, the UK government repeatedly said the cost of living crisis was a ‘global issue’ - so how do inflation rates compare in other countries?
Despite a 0.2 percentage point dip in the latest Office for National Statistics (ONS) Consumer Prices Index (CPI) - the UK and wider West’s official inflation yardstick - prices are expected to reach a new 40-year high later in 2022.
This claim was subsequently used by the Conservative Party leadership contest candidates to defend their party’s economic track record.
But how does the UK’s CPI compare to those in Europe?
NationalWorld has analysed the latest data from our closest neighbours to see if the UK’s inflation rate is on the par the government says it is.
What is the UK’s CPI rate?
The CPI is an internationally comparable method of tracking inflation for a typical basket of everyday goods and services.
The prices of everything from food, to clothing, to cars are included, with the basket weighted towards items that are most important to households.
For example, milk and bread has a greater bearing on the overall inflation rate than smartwatches.
Whilst being an important yardstick against which we can determine whether or not to alter our spending habits, the CPI is also used to set state pensions, benefits and statutory sick pay.
As of August 2022 (the latest month for which we have data), the CPI rate in the UK was 9.9%.
This means the overall basket of goods cost 9.9% more than it did in August 2021.
To put that into perspective, the CPI inflation rate in August 2021 was 3.2%.
How does the UK compare to Europe?
When NationalWorld first compared the UK’s inflation rate to those in Europe in January 2022, we found it had seen one of the largest proportional year-on-year increases - with only Spain, Belgium and Ireland experiencing bigger leaps.
But as of August 2022, the UK has been caught up by some of its near-neighbours, while the Netherlands has become the standout worst-affected country in Europe.
The main difference between the UK and other nations thus far has been energy bills.
The UK’s Ofgem energy price cap has proven to be highly inflationary, while some governments on the continent have been able to shield their citizens from the worst energy bill rises.
The 54% increase to the Ofgem cap in April 2022 drove the UK CPI up by a massive two percentage points and briefly pushed it above those of other European countries.
The UK is also more reliant on gas than other European countries that still have the capability to burn coal.
With new Prime Minister Liz Truss planning to freeze energy bills from October, a similar boost to inflation appears to now be unlikely.
However, there major questions about whether there will be enough energy supply to get the UK and Europe through the winter.
Any halt to Russian energy imports on the continent could cause inflation there to soar, while the UK public purse would be placed under significant pressure.
In terms of the latest August 2022 CPI, the Netherlands has moved clear to become the worst-hit country in western Europe with a CPI of 12% after a second consecutive month-on-month inflationary rise of 1.7 percentage points.
Its official statistics body says the main driver was energy costs, which are now 151% more expensive than a year ago.
The Netherlands is particularly exposed to high energy prices given it has little domestic production, and it has since been cut off from Russian gas by the Kremlin.
Its government is banking on a VAT cut and a windfall tax to ease inflationary pressure on households.
While the Netherlands, along with the likes of Germany and Italy, saw average price rises go up month-on-month, several countries (including the UK, France and Ireland) saw inflation fall back marginally.
While the expectation is that these countries will see their inflation rates climb again in future figures, the common theme behind August’s dip was petrol pump prices.
Although this sounds like good news, the situation could be a major indicator that we’re on course for a global recession.
If oil prices are dropping back when they should be high, it means industry is likely to be undertaking less economic activity, which in turn is likely to mean economic growth will fall.
The UK has already had a dip in economic growth in its second quarter of the year, with forecasts predicting it will have fallen into a shallow recession by the end of the year.
However, the fall in prices is also likely to be as a result of an improved outlook for oil output, and tax cuts for motorists.
In the case of Belgium, an important bit of context to note is that all wages in the country are tied to the CPI; so when inflation goes up, consumers lose no purchasing power.
Here in the UK, wages have fallen well behind the rate of inflation, according to the latest ONS figures.
Is the UK in a better or worse position than Europe?
The sources of the problems faced by European countries are broadly similar to those impacting the UK.
A mix of the Russia-Ukraine war, the recovery from Covid-19 and supply chain bottlenecks are all common themes behind inflation, with price rises being most acute in energy, food and transport.
Where the differences lie are in policy, which suggests the UK government is not entirely the hostage to global pressures it claims to be when it comes to the cost of living crisis.
European governments have opted to do more to shield households from soaring inflation through faster, more generous tax cuts and/or state handouts.
For example, Emmanuel Macron has ploughed billions of Euros into more extensive but targeted tax cuts on things like fuel in France, while his country also benefits from a long-term nuclear energy strategy - although this industry has had reliability problems of late.
It means the country expects inflation to reach 6.5% by December - half of what the Bank of England has previously predicted for the UK (around 13%) by the end of the year.
While Boris Johnson’s government did eventually introduce support, such as the cost of living payments for people on benefits, it did not attempt to suppress energy bills.
It is understood new PM Liz Truss’s plans to freeze energy bills is likely to shield the UK from the outcomes predicted by the gloomiest inflation forecasts.
But the big unknown in the UK is how her other policies - including her desire to pursue tax cuts over state handouts, and the government borrowing that will neccesitate - will help or hinder the UK’s inflation rate.
The UK also has several other challenges European states do not face or do not face to the same extent, such as labour shortages and Brexit-related trade frictions, which are likely to keep prices inflated at a higher level for longer.
How Liz Truss walks the economic tightrope between recession and inflation, and how she works to ease these other problems, will determine how UK inflation compares to its European neighbours.