Almost every European economy is now facing eye-watering inflation sparked by rising food and energy prices. And it seems that things will only get worse before they get better.

Why Is Inflation so High in Europe? Here’s What You Need to Know

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Time and time again, it’s a story about inflation…

We published a SPOTLIGHT in June, explaining inflation in key European countries and what local authorities were doing to bring it down.

 The war in Ukraine has escalated, Europe has plunged into the energy crisis, markets have seen even more volatility… 

it’s time to give you an update on this inflation 

To see where the situation is headed now, we decided to freshen up our previous SPOTLIGHT by adding some new economic and political data. 

So let’s dive right in and take a look at inflation in several countries, including France, Germany, Italy, the UK, and Switzerland.

Inflation in France seems to have slowed down, but maybe 

 from a year ago in September, down from 

in August. This drop was largely due to various public policies, like the gas “tariff shield” that was implemented by the government to freeze gas prices amid rising living costs.

But analysts say this slowdown in inflation doesn’t necessarily mean a drop in underlying inflationary pressures. 

They expect the cost of food to increase by some 12% by the end of the year

 is not much better: while economic growth should reach 2.7% in 2022, it is expected to fall to 1% in 2023.

Economic indicators in French national colors representing the rising inflation rate in France

So what is the government doing to make things better, you may ask?

President Emmanuel Macron committed about 

 to mitigate the effects of inflation and was planning to introduce new measures to boost purchasing power, ranging from an increase in base pensions and civil servants' salaries to food subsidies for the poor.

“We are totally determined to fight against inflation and protect the poorest households against the rise in gas and electricity prices,”

 to prevent price fears from impacting consumer sentiment, which has already fallen below levels seen during the pandemic and the Yellow Vest protests.

 in France to those in other OECD countries between September 2021 and September 2022:

A graph showing consumer confidence rates in France (in red) and other OECD countries (in black) between September 2021 and September 2022.

France’s consumer confidence fell sharply

 around March and continued to decline in the following months.

, as worries about inflation weighed on sentiment in Europe's second-largest economy.

What is Germany’s current inflation rate?

The German flag with 100, 50, and 20 Euro notes in the background, representing rising inflation in Germany

With its reliance on energy imports from Russia, the 

 and the ban on Russian energy imports have strongly impacted the German economy.

To combat consumer price increases, Germany, too, is planning a series of measures to try and 

, especially when it comes to rising energy prices.

These measures include cheaper public transportation tickets during the summer months, discounts for gas station drivers, and paying German consumers’ heating bills for December 2022.

And yet, as Holger Schmieding, the chief economist of Berenberg Bank, said, 

"the gas pump discount and other interventions may well lead to the

 inflation rate in Germany increasing further

And the recent suspected sabotage of the strategic 

The two pipelines linking Russia and Germany are now at the center of international intrigue after a series of explosions caused what might be the single largest release of methane in history, shutting down any possibility of using it to import Russian gas to Europe for the foreseeable future.

Is Italy experiencing high inflation, too?

highest inflation rate in nearly 37 years.

 rate accelerated to 8.9%, up from 8.4% in August.

Mario Draghi, Italy's outgoing prime minister, with the EU flag in the background

“Inflation hurts the lowest and poorest income segments. The government has spent about €30 billion to mitigate the effect of energy prices on the most vulnerable families, and there have also been interventions on firms,”

, Italian inflation was running at about 

, posing a difficult challenge for his successor Giorgia Meloni.

Like Germany, Italy relies heavily on Russia for its energy, leaving it particularly vulnerable to the war in Ukraine:

“Some countries are more exposed than others. Within the major countries, Italy is as exposed as Germany, and probably even more, to high energy costs …  It is a massive term of trade shock to consumers, which means the whole country becomes poorer,”

 said Lorenzo Codogno, former director-general of the Italian treasury.

And a recent agreement between Italy and Algeria to supply gas from North Africa will take years to pay off.

Will the cost of living go down in the UK?

things will get worse before they get better

 in September, well ahead of the BoE’s 2% target, stoking further fears around the cost of living that has put many lives on hold. 

In an effort to tame rising prices, U.K.'s central bank has raised interest rates 

In April, UK inflation soared to a a 40-year high of 9%, stoking further fears around the-cost-of-living crisis.

 said paying their regular household bills in March was 

compared to a year ago, according to the latest Office for National Statistics (ONS) report.

Moreover, a recent YouGov study showed that out of 2,000 Brits polled, 

said they knew someone who was struggling

To address the crisis, the government has introduced several measures, including a scheme to boost the incomes of low-income households through one-time increases in welfare payments. But charities and anti-poverty organizations have slammed the measures as only providing 

Last month, Liz Truss took office, promising to revive the U.K. economy. Instead, her tenure so far has been marred by turmoil as the pound fell to record lows, mortgage rates soared, and chaos in bond markets threatened the country’s financial stability. 

As if that were not enough, analysts forecast 

 will last longer in the U.K. than in similar economies. It will be 

, while in the Eurozone, only Slovakia is forecasted to have a higher rate.

Looks like dark clouds 🌩️ have descended upon the U.K. economy…

While the rest of Europe grapples with soaring prices, Switzerland looks like the land inflation left behind.

Switzerland’s inflation rate remains the lowest in Europe, but the country seems to have an inflation bug too as consumer prices soared to a 14-year high in May.

The rate of inflation in Switzerland fell to 

 economists had predicted. Why is it so low, compared to the Eurozone, where inflation runs at double digits?  

There are three major differences between Switzerland and other countries:

the Swiss franc. Switzerland’s national currency is largely responsible for price stability. The Swiss franc has increased in value in recent years: one Swiss franc was worth around €0.6 in 2008. By summer 2022, it cost €1.0.

, rents are not indexed in Switzerland, so they do not rise in lockstep with inflation.

, electricity prices in Switzerland fluctuate less than they do elsewhere. As a result, prices rise at a relatively slow pace.

Yet, inflation in Switzerland still exceeds the Swiss National Bank’s 2% target, but the SNB has its fingers crossed the situation will 

So what is the expected inflation rate in Europe for the coming years?

So far, there have been no indications that price pressures are slowing down.

 from a year ago in September, and it looks like they have no plans of going down.

“Price gains are likely to hover around the current level until the start of next year. The rate is then expected to start a gradual decline as energy pressures ease,”

 Maeva Cousin, Bloomberg’s senior economist, said.

A graph showing inflation in the eurozone is likely to persist through 2023

In the euro area, the Harmonised Index of Consumer Prices (HICP) is used to measure consumer price inflation. As you can see, inflation is likely to persist into 2023.

We're bracing for a few more tough moments. With Russia squeezing gas supplies to Europe and winter approaching, recessions are very likely, and high inflation will last… 

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