No Fest For The Wicked

Image source: Big Beat Records @wearebigbeat - Giphy, Alexandros Michailidis - Shutterstock

What's going on?

The rate at which the prices of goods and services increased in the eurozone – a.k.a. inflation – rose by slightly more than expected in June, but the bloc’s central bank shouldn’t celebrate just yet…

What does this mean?

June’s eurozone inflation was 0.3% compared to the same month last year – a pickup from May’s four-year low. That suggests growth might be returning, which should be good news for the economy. But there was cause for concern: price rises in the services industry – bars, restaurants, and so on – lagged those of food, tobacco, and alcohol. That’s worrying because services make up over half the eurozone economy, and “supply” – space, reservations, and the like – will be tight as the bloc tries to reopen safely. Economists will be watching closely, then, to see whether a much-hoped-for increase in demand drives future price hikes.

Why should I care?

The big picture: Low inflation ain’t so bad.

As far as the European Central Bank (ECB) is concerned, inflation at any level is better than deflation, which could send the eurozone on a downward spiral from which it may never recover. But it’s not out of the woods yet: inflation’s been below the ECB’s previous 2% target for seven years now, and the bank doesn’t expect it to rise much above zero until next year, as coronavirus leaves lasting effects on unemployment and, in turn, consumption.

Zooming out: Low inflation really ain’t so bad.

People are drawn to investing when inflation is high because it helps protect the value of their money from being eroded over time. That’s no truer than in Zimbabwe, where inflation hit 786% in May – its highest in ten years – and locals fled to the domestic stock market in their droves to protect their cash. And on Sunday – seemingly with no explanation – the government shut the country’s stock exchange down, leaving folks unable to get their money back out.

Originally posted as part of the Finimize daily email.

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