Inflation in Europe: How is it Calculated and Predictions for 2023

We have been through quite a lot in the last couple of years. One of the most recent pressing global problems we were experiencing is massive inflation in pretty much every corner of the world.

It is that time of the year, your anxiously awaited yearly review is coming up. Finally, some monetary relief for all the accrued constantly increasing expenses. You sit down with your boss who enthusiastically smiles while informing you that you are eligible for a 3% increase in pay.

An increase in pay of any size cannot be bad, right? Well, if you were to go on the internet and search the inflation rate in your country – sour disappointment is imminent. In the European Union the buying power of your hard-earned euro dropped by 10.4% in 2022. 

Hungary, Latvia, and Lithuania are at the forefront of inflation in Europe with 25, 20.7, and 20 percent respectively.

Of course, it is important to understand how the inflation rate is calculated, it could very-well be that some increases in cost of services or goods simply are not that important to you.

To measure the average inflation countries’ government bodies conduct surveys of households, trying to understand what are the most common day-to-day expenses of their citizens. That includes housing expenses like rent and/or mortgage, energy bills, transportation expenses, groceries, etc.

Once the most common expenses are identified, the ‘consumer basket’ is defined. From there the cost of the consumer basket can be calculated. The data is then converted into the consumer price index (CPI). The base year CPI is equal to 100. Using this logic we can calculate the inflation in comparison to the last year’s CPI. If last year the CPI was a 100 and this year it is a 110, we can assume that inflation is 10%.

The European Commission forecasts that in 2023 inflation in Europe will drop to 6.4% and fall as low as 2.8% in 2024.