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Is Europe out of the inflationary woods?

The past three years have been the most inflationary in decades for Europe. Price increases have now been brought back into a more normal range, at least for consumers. But tight labour markets and upwards pressure on wages are continuing to push up costs for labour intensive industries such as health care.

In 2022 and 2023, inflation rates shot up to the high single and low double digits across most of Europe. This was largely driven by huge increases in the cost of energy after Russia’s invasion of Ukraine. In 2023 energy costs started to come down again, which has helped to bring inflation back under control (as well as, of course, central banks putting the breaks on the economy by increasing interest rates). This has also allowed energy intensive sectors such as hospitals and diagnostics to breathe a little easier.

On the other hand, wages are continuing to grow strongly. Whilst this is of course great news for workers in need of a real-term pay increase, it also means that businesses in labour intensive industries are still seeing significant increases in their costs. This is particularly relevant for health care, given it has an especially severe workforce shortage.

We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.