UK v EUROZONE Inflation4 Aug 2022 06:07
“If you think the UK has an egregiously high inflation rate by international standards, or is in worse economic shape than European peers, you have been misinformed.
The OECD’s June reading for developed states, released yesterday morning, places UK inflation in the middle of the pack at 8.2pc (under their measure), and somewhat below the average of 10.3pc.
This may come as a surprise to many since news coverage has tended to portray the UK as a dysfunctional outlier, with every new twist of the cost of living crisis instantly weaponised by Team Brussels to indict Brexit. The UK is below Spain (10.2), Belgium (9.6), the US (9.1), Sweden, Austria, and Portugal (8.7), or The Netherlands (8.6).
France is much lower (5.8pc) but that is because the Colbertian French state has bucked the market and imposed price controls on gas and electricity. The annual rise in household power bills is capped at 4pc, marvellous if you can get it, which I do since my family have a start-up farm in the Perigord.
Thank you, President Emmauel Macron: most generous, and I notice that it got you re-elected.
However, I do not need or merit this indiscriminate subsidy.
It violates standard advice given to emerging market states by the International Monetary Fund (IMF). Manipulating the price signal encourages waste when the imperative is conservation.
Somebody must pay for this bung, and ultimately it will be the French taxpayer through a state bail-out of EDF and the utilities. It is going to work out to be expensive.
Half of the French nuclear fleet is out of action. The day-ahead spot market for electricity in France this morning was €488 (£408) MWh, 10 times the decade-long average. Futures contracts are pricing in yet higher levels over the winter.
The equivalent price in the UK is €256 MWh, which is why the UK is sending 2.06 gigawatts to France via the IFA 1&2 interconnectors right now, earning an enormous arbitrage spread and improving our monthly trade deficit, which needs a lot of improvement. So yes, French inflation is lower but to suggest – as Team Brussels is apt to do – that France has got this energy crisis completely right while the UK has got it horribly wrong is a stretch.”
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