Inflation Fever Strikes Europe

A stronger dollar swells prices

The dollar can do no right, at least in the eyes of Europeans. When the greenback was plummeting almost daily last year, moneymen in strong currency nations like West Germany and Switzerland screamed that their goods were being priced out of the U.S. market. Now their complaints have changed. The newly revived dollar, strengthened by Jimmy Carter's rescue operation last November, is quickening the inflationary pace all around Europe. As a result, Germany, Switzerland, France, Britain and Italy are suffering a severe case of racing prices.

The key culprit, of course, is not the dollar but oil. Crude imports are paid for in dollars, and in years gone by Europe got used to offsetting higher OPEC prices by the subsequent declines in the value of the dollar. Every time the dollar fell--and it nearly always fell when OPEC's prices were raised--the real cost of oil hardly changed and sometimes actually became cheaper for countries with strong currencies.

No longer. Since last November, despite the latest rounds of OPEC increases, the dollar has remained strong, largely because multinational money dealers believe that the U.S. Government is at last determined to protect its value by keeping interest rates high, reducing budget deficits and pursuing other anti-inflationary policies. Over the past six months the dollar has gained 21% against the Swiss franc and 11% against the West German mark. Consequently, Switzerland and West Germany, which import nearly 100% of their oil, have been hit by the full inflationary impact of the cartel's rate rise. And this hurts: prices in Switzerland and Germany have shot up at an annual rate of 9% and 9.6%, respectively, in this year's first quarter, compared with practically no increases in the preceding three months. Moreover, double-digit inflation now plagues every major European Community country. In the first quarter, prices in France rose at an annual rate of 10%, vs. 8.4% in the preceding quarter; Britain suffered 12.4%, vs. 6%; and Italy 17.6%, vs. 12%.

Oddly, Europe's problems help the U.S. Its inflation rate, 13% in the first quarter, is no longer much higher than that of the strongest currency countries. While the gap may not close completely in the near future, this trend will add strength to the dollar, attract capital back to America, and reverse the once large dollar outflows. Europe, for its part, unfortunately may have to adopt more restrictive monetary, tax and spending policies and learn to live with higher unemployment as well as lower economic growth.

This file is automatically generated by a robot program, so viewer discretion is required.