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Cost of Living Not High Enough in EU

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The EU may have many worries and woes that are slapping it around its face right now (and it could be said for a number of years), but there is one thing that is worrying economists more than the sovereign-debt crisis and that’s the fact that prices are not increasing enough. Economists at the European Central Bank have been demanding an increase in prices and for the ECB to react. If only they would ask the people what they actually thought, it would be certain that Europeans might well answer that the rise in prices is the last thing they need.

While Europeans have trouble finding enough money to pay the bills and eking out your salary is the order of the day for most people these days (and not just in Athens), it seems just a little far-fetched to ask for a rise in prices that is quicker today. As France gets a drop in the ratings by Standard and Poor’s and falls to AA (with a stable outlook).

The result for France was an increase in 10-year borrowing costs and bond yields that increased to 2.389% at the end of last week. Standard and Poor’s stated: “We believe the French government's reforms to taxation, as well as to product, services and labor markets, will not substantially raise France's medium-term growth prospects”. The statement went on to say: “ongoing high unemployment is weakening support for further significant fiscal and structural policy measures. Moreover, we see France's fiscal flexibility as constrained by successive governments' moves to increase already-high tax levels, and what we see as the government's inability to significantly reduce total government spending.”

EU Trouble with Deflation


EU Trouble with Deflation

Prices in France for example rose in September by just 0.9%. Admittedly, inflation is bad, but no inflation is just as bad. Why get your savings out of the bank when the prices will probably drop in the future anyhow? Borrowing money is hardly going to be on the agenda since in times of normal inflationary pressure, the repayments would decrease over time as a percentage of the income. In times of deflation the repayments remain considerably higher than they should be.

But, who in the EU believes that they have enough money to put up with another increase in prices? Perhaps if they hadn’t played about with the prices so much when they brought in the euro, they wouldn’t be in the mess they are in now. According to the ECB and Eurostat, while they admit that prices for everyday products rose considerably (without actually stating by how much), they have stated that prices rose on average only by 0.3% when the euro was introduced in 2002, which was added on to the inflation that year of 2%.

  • The annual average increase in prices was just 0.7% for the Eurozone according to economists by the end of October 2013.
  • Spain had an annual average increase in prices calculated at 0.5% in September and -1% in Greece.
  • Ireland was at 0%.

What is true is that countries with high levels of debt will have greater difficulty seeing that burden decrease over time if there is no inflation. Greece has a debt of 169.1% of GDP and Italy has a public debt of 133.3% of its GDP.


Feeling that prices increased in the EU?

How many Europeans actually felt only an average price increase of ‘0.3% above normal’? Statistics can tell any old story we like really.

The Cost of Living

The Cost of Living Index for 2013, which is updated every year in Q1, uses New York City as the relative comparison and the base figure of 100%. All countries are shown as comparisons to that base figure.

  • The Groceries Index provides a comparison of grocery prices for daily products. The US as a whole has a weighting of 80.74%, which means that the cost of groceries over the entire country are nearly 20% cheaper than in NYC.
  • The UK has a weighting of 93.06%
  • France stands at 97.75%.
  • Germany comes in at 80.74%.
  • The most expensive country in the world for groceries is Switzerland, standing at 153.05%.

Local Purchasing Power

Local Purchasing Power in the Index of the Cost of Living shows the relative purchasing power and the ability to purchase goods or services with the average wage of that country.

  • Again NYC is the base rate of 100% with all other countries being compared to that.
  • The United States has an overall country-wide local purchasing power of 136.5% this year, meaning that the US as a whole can purchase on average wages of the country 36.5% more than New Yorkers can.
  • Everything is relative however, since the average wage can be largely bought into question.
  • Figures for the UK stand at 89.07%.
  • That means that the British can buy just under 11% less than New Yorkers.
  • France is at 98.11% and therefore stands on par with those in New York.
  • Germany stands at 117.58%, meaning that Germans make their euros go further than the dollar in New York, but way under what the average for the US is able to get for their money.

Average Wages in the World

The average monthly wage was published last year by the United Nations’ International Labour Organization and it averaged out to $1, 480 per month. It was the first time that such a figure had been published by the UN (2012 for 72 countries). Firstly, the figure is largely open to criticism because it is an average and secondly because it is for 72 countries in the world and therefore cannot be representative. Surely, at least the median wage would be a better starting point if we were going to compare anything. Averages are bad simply because they don’t take into account the excessively high or low income in some countries.

  • The average wage in the US is supposedly meant to be $3, 263.
  • In the UK (which is just one place behind the US in the listing, in 5th position) stands at an average wage of $3, 065 per month.
  • France has an average monthly salary of $2, 886.
  • Germany has an average monthly wage of $2, 720.

Maybe you can compare your own salaries to those averages and either see where you are or whether you believe it or not. We can do anything we like with statistics, it has to be admitted.

The ECB decided that their answer to deflation in the EU was to decrease interest rates to record lows.  ECB benchmark interest rates were decreased last week to 0.25%, from 0.5%. The euro fell against the dollar immediately by 1% and that may help the Eurozone become a better buy in the months to come.

In the meantime however, whatever good it may do to the Eurozone, the people there are hardly going to be happy that they have to have another increase in their prices yet again.

 

Originally posted: Cost of Living Not High Enough in EU

 

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Tue, 11/12/2013 - 17:52 | 4147571 MagicMoney
MagicMoney's picture

Hahahahah. Yeah deflation is terrible, we need higher prices. Europeans just love to pay more money for the stuff they buy. Declining wages, and higher prices like Japan? Lol. Oh boy. You would think cheaper prices is a relief for the consumer. Seems that mainstream economist see higher prices helps the consumer out more apparently. Hem, hem.. After a time of inflation in the UK, now it's deflation armagedeon. Cheaper prices are terrible. Why not just ask people to price gouge.

Tue, 11/12/2013 - 12:23 | 4146159 Randoom Thought
Randoom Thought's picture

JMHO ... the problem with the cost of living is the parasitic "free rider" syndrome. People could cope well with costs if it was not for elitists in banking, government, insurance and law taking a percentage of everything they do. We just need to find a solution for the parasitic free riders and re-task them from living off of our work and give them something productive to do.

Tue, 11/12/2013 - 11:19 | 4145916 screw face
Tue, 11/12/2013 - 11:13 | 4145890 ElvisDog
ElvisDog's picture

The whole "people will be able to repay their debt in cheaper dollars/euros/etc" argument about why inflation is good is such utter bullshit, because it is only true if wages are going up faster than inflation, which never happens for a society as a whole. Cost increases always outstrip any wage gains.

Tue, 11/12/2013 - 10:47 | 4145788 Liquid Courage
Liquid Courage's picture

Admittedly, inflation is bad, but no inflation is just as bad. Why get your savings out of the bank when the prices will probably drop in the future anyhow?

 

What? There's deflation? I guess I'll just sit here naked on this rock and never buy anything again because it'll be cheaper when I'm dead. The mind-numbing stupidity of this scary deflation bogey-man argument ought to give anyone who bothers to actually think about it a moment of clarity as to the intellectual foundations of the Economic Priesthood that holds the whole world in thrall.

If it sounds too stupid to be true, it IS too stupid to be true ... and yet, they believe it ... or say they do.

So, 2 or 3 percent grinding inflation which has reduced the dollar to a twentieth of its former value over the hundred year span of the Fed's existence (do the math http://www.minneapolisfed.org/index.cfm ) is GOOD, but a 2 or 3 percent deflation - the benefit of technological progress and improved efficiency - which would gradually increase the value of the dollar is BAD.

And the only argument offered in defense of this clearly ludicrous proposition is the above notion of 'everybody' voluntarily starving to death to save a nickle 'next month'.

For those who haven't: THINK about what that means. Why do they believe what is clearly NONSENSE?

CUI BONO?

Tue, 11/12/2013 - 10:19 | 4145691 JimmyRainbow
JimmyRainbow's picture

rents in hamburg are 10% up each year for 3 years in a row now.

same for every other City, a little bit milder 100 kms off the cities

they even stopped showing the price-graphs on www.immobilienscout24.de

no official numbers on that, just a sneaky 10-15% rent-plus everytime a relocation happens.

and even the big half-town-owned saga gwg corporation behaves like a hedgefund, pressing all out of the inhabitants

buying frenzy for +3 years by now.

spending a third or half the usable money on just living in a flat is the new normal for your joe-sixpack-meme ......

Tue, 11/12/2013 - 10:17 | 4145684 Sandmann
Sandmann's picture

Try the UK which has had the highest increase in Food and energy prices anywhere in the EU after the 30% Devaluation in 2008. Stagnant incomes and huge increases in Food Prices and Energy and imported goods make for the longest squeeze on living standards in recorded history.

Just a funny thought - HP ink-jet cartridge price increase at Amazon 25% in 4 years. Energy pricesn +60-80% over the same periodand Food well it is funny how much cheaper it is in Germany or France because Britain has the "Island Premium" and the costs of trucking from Spain have exploded as diesel prices have been screwed ever higher by Bank speculation

 

Tue, 11/12/2013 - 09:45 | 4145582 lynnybee
lynnybee's picture

from first hand experience:   March, 2012; i exchanged my dollars into euros.   $10 got me approx. 6euros, give or take a little.   the can of Diet Coke i ordered at a restaurant cost me 6euros (i was desperate, people; the drinking glasses looked so dirty, i just said, give me a can of Diet Coke & i'll drink it straight from the can.)    then, it dawned on me ..... DID I JUST REALLY PAY $10 FOR A GDAMN CAN of DIET COKE ?!   i guess i did.   & you won't even guess how much that taxi ride to the airport cost me in dollar value.  NEVER do i go to Europe again....... the same kind of "NEVER" as in NEVER EVER in my lifetime will i ever purchase a G.M. auto.  

Tue, 11/12/2013 - 09:32 | 4145546 Brit_Abroad
Brit_Abroad's picture

Answer me one thing.

Anyone with a handful of brain cells knows that the official inflation rates are a very bad joke.

So why use them, They mean nothing.

Why mention deflation, it may well mean a decrease in the monetary supply but most people assume it to mean lower prices.

So where are all these lower prices ?

Don't see any around here (Germany)

Tue, 11/12/2013 - 11:08 | 4145874 LawsofPhysics
LawsofPhysics's picture

Correct.  It's like using the word "market" and "price discovery" in the same sentence.

Tue, 11/12/2013 - 09:27 | 4145538 LawsofPhysics
LawsofPhysics's picture

"meaning that the US as a whole can purchase on average wages of the country 36.5% more than New Yorkers can." -

And what do wages in the rest of the country look like compared with those paper-pushing kleptocrats on wall street again?

Yeah, I thought so.  Fuck Jew York and roll the motherfucking guillotines...

"problem" solved.

Tue, 11/12/2013 - 09:36 | 4145552 rationaldemocracy
rationaldemocracy's picture

Maybe, just *maybe* the salaries in New York have to do with the education level of it's residents?

Tue, 11/12/2013 - 11:07 | 4145873 centerline
centerline's picture

I don't often use too much of the modern texting lingo... but in this case...

 

ROFLMAO.   hahahahahahahahaha.

Tue, 11/12/2013 - 10:01 | 4145620 LawsofPhysics
LawsofPhysics's picture

Define "education".   Plenty of excellent educational institutions all over the world.  Try leaving the burrow loser.

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