Growth in Europe Is Strong, But Inflation Worries Some
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KORTRIJK, Belgium — Shortly after he was appointed Belgium’s economy minister this spring, Vincent van Quickenborne ordered an inquiry into the price of “frites.” Invented in Belgium but known to the world as French fries, these crispy national favorites had jumped in price by 4% over the prior year — despite a 24% drop in the price of potatoes.
Suppliers immediately blamed the rocketing cost of energy and rent. Mr. Van Quickenborne quipped that the price of fries just might be chasing the price of a barrel of oil. (Not that they’re cooked in such grease.)
In all seriousness, the minister made it clear that, through his inquiry, he was chasing a much larger problem affecting not only Belgium but much of Europe: inflation.
With America hovering on the brink of recession and the Federal Reserve deciding that slow growth is a bigger threat than inflation — even with higher fuel and food costs — Europe remains strong.
Euro-zone economies grew 0.7% in the first quarter compared to a year earlier, while America eked out 0.1% in the same period. Leading the way was Germany, Europe’s largest economy and biggest exporter, with a 1.55 expansion. But even France, which has been plagued by stagnation and social unrest, did moderately better than expected with 0.6% growth. Such figures have affirmed the European Central Bank’s steadfast refusal to follow the Fed in lowering interest rates, which can fuel inflation.
But the European public is fretting about rising prices. In Belgium, inflation hit 4.9% in March compared to a year earlier, its highest rate since 1985 and the steepest in the 15-country euro zone, where the average was 3.4%, according to Eurostat, a statistical agency. (American consumer prices were up 4% in March over the previous year.)
But the inflation problem wasn’t just created by the soaring cost of crude oil or by Belgians paying more for milk because of rising global demand. It is also fueled by policies in euro-based economies. In France, regulations limit the workweek and make it hard to dismiss employees — rules that businesses say increase costs and reduce efficiency.
In Belgium, the government guarantees wage hikes tied to inflation. So starting this month, for the second time in four months, Belgian workers will take home an additional 2% in their paychecks.
Though this has cushioned household budgets, it hasn’t eased concerns about what is grabbing headlines almost daily: the buying power of ordinary Europeans.
In Kortrijk, businessmen, shoppers, the mayor, even trade union members all expressed optimism that through entrepreneurship and innovation, they could make the changes demanded by the world economy without destroying their way of life.
At the scenic Buda Cafe on Kortrijk’s riverfront, new owner Jean-Pierre Martin has refused to raise most prices even though the cost of many commodities has gone up. He is building his clientele, welcoming new customers every weekend, he explained: “Several years ago Kortrijk was dead, but it’s finally turning around. I don’t want to miss this opportunity.”
After two years, he’s already had an offer to buy his restaurant for one-third more than what he paid. It’s too soon to cash out, but he recently made a concession to rising costs. He began charging an extra $2.30 for a side order of frites.
“Some things are unavoidable,” Martin said, smiling. “Prices are just going up.”