The European Central Bank has convened a emergency meeting to try to stem the spread. This word, which technically stands for “differential”, has now fully entered the European financial lexicon as the difference in yields between the government bonds of the most indebted countries (Italy, Greece and Portugal above all) and the safest government bond of the euro area, the German Bund.
The other spread
An excessive increase in the “spread” risks causing serious problems for the financially more fragile countries and, in turn, for the entire strength of the Eurozone. There is, however, another spread, which is still little talked about, which could represent, if not contained, an even wider concern for the Eurozone and its economic stability.
This is the difference between producer prices (those that firms have to pay when they import products) and consumer prices (the cost of retail goods and services). We can define the former as a sort of “upstream inflation”, the latter as “downstream inflation”.
The price differential
The current exceptional economic scenario – weighed down by the effects of the pandemic to which those of the war between Russia and Ukraine have been added since February – is causing consumer prices to soar (8.1% in the Eurozone in May, a level never reached in more than twenty years of experience of the single currency) as, and much more, the producer prices which in the last survey in April jumped to a record of 37.2%. Consequently, the spread between the two values is 2,900 basis points (29 percentage points). We should call it a chasm rather than a spread.
Why does this enormous distance between the two most important forms of measuring the prices of an economic area (production and consumption in fact) risk becoming a much more serious threat than the spread between government bonds?
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