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| A weekly newsletter zooming in on Europe through local perspectives. Every Friday, one topic explored by five independent newsrooms. | | IN THIS ISSUE | §01 · In focus — Inside the EU’s Inflation Divide
§02 · The local view — Berlin, Riga, Warsaw, Vienna and Zagreb
§03 · The podcast — Listen to the latest episode and join the conversation
§04 · From the newsrooms — Recent reporting from the lensEU network |
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| §01 · IN FOCUS | Inside the EU’s Inflation Divide | Before the outbreak of the war in the Middle East, inflation stood below 2% in the eurozone and at a slightly higher 2.1% in the European Union. All indications suggested that, after more than four years, inflation was finally on track to stabilize at the desired level. Inflation rates still varied considerably across member states, but not enough to complicate the conduct of a common monetary policy. | That was also the assessment of Croatia's central bank governor, Boris Vujčić, at a confirmation hearing before the European Parliament just three days before the United States launched strikes on Iran, a development that would once again rekindle inflationary pressures. Vujčić was appearing before Parliament as a candidate for Vice-President of the European Central Bank. It was precisely these disparities in inflation rates among member states, along with the question of how a common monetary policy should be conducted, that most concerned the European Parliament's Committee on Economic and Monetary Affairs. | Members of the committee wanted to know why inflation in some member states was running at more than twice the eurozone average, and several times higher than in others. Put simply, they wanted to understand why, for example, a tomato grown in Spain could sell at vastly different prices across the European Union—even in countries that apply the same VAT rate to the product and where it is sold by the very same supermarket chain.
Vujčić, who is set to help shape the eurozone's monetary policy, argued that inflation differs across member states because their economies are at different stages of the business cycle. Stronger GDP growth tends to fuel faster income growth, stronger consumer spending, and higher investment, resulting in higher inflation. Inflation is also typically higher in countries where food and energy account for a larger share of the consumer basket because those categories saw the sharpest price increases in recent years. As a rule, these are lower-income countries, where households spend a larger share of their monthly income on essentials such as food and energy. | Vujčić pointed out that inflation rates have never moved in lockstep across all member states, while acknowledging that the inflationary wave of the past four years has led to some of the largest divergences in inflation rates in the euro area. At the time, Eurostat's January data showed France with the eurozone's lowest inflation rate, at just 0.4%, while Slovakia had the highest, at 4.3%. Vujčić noted that these disparities had been even greater in 2022. At one point, inflation rates across eurozone member states ranged from 6% to 25%, a spread of nearly 20 percentage points. By comparison, the four-percentage-point gap recorded in January poses no challenge for the conduct of monetary policy, Vujčić argued. | What poses no challenge for monetary policymakers is a different matter for political leaders. The inflation surge has exposed a stark divide between Europe's old and newer member states, almost perfectly tracing the line between countries where inflation exceeds the EU and eurozone averages and those where it remains below them.
There are, of course, objective reasons for this. The newer member states have generally grown faster, while both nominal and real wages have risen much more rapidly. As a result, workers have often been better off despite higher inflation. But when an identical product costs 20% or even 50% less in an older, wealthier member state—where average wages are still higher—the issue becomes political. That is especially true when the product is made by the same manufacturer and subject to the same VAT rate.
At that point, arguments that stronger GDP and wage growth have fuelled inflation carry little weight. The impact of inflation is shaped as much by perception as by calculations of real wage growth. Few things are more likely to foster a sense of unfairness among Europeans than seeing an everyday product sold more cheaply in a wealthier western member state, particularly when the retailer is one of the same chains operating across the continent. | Such conditions provide fertile ground for populists of all stripes, particularly those who claim that this unfairness came with the European Union. Inflation then becomes an additional political burden for any government, especially when attempts to curb it fail and political leaders begin looking beyond their borders for someone to blame.
Over the past four years, the European institutions have paid little attention to this issue and have been even less successful in convincing Europeans that they were trying to address it. The war in Ukraine and the surge in energy prices became the default explanation for inflation and its many distortions. There is no doubt that they were its principal drivers. The greater mistake, however, was to sweep every other contributing factor under the carpet. Even after several years and repeated initiatives by member states, the European Commission has yet to explain why retailers cannot buy products from any supplier within the EU, but are instead effectively tied by manufacturers to domestic distributors, who often charge higher prices. | It is also often forgotten that inflation in both the eurozone and the EU had already risen above 5% by the end of 2021, before the outbreak of the war in Ukraine. In the Baltic member states, it had already reached double digits. That surge was driven by the recovery in demand and the rebound in economic activity following the pandemic. To cushion the economic downturn, the EU responded with hundreds of billions of euros through the Recovery and Resilience Facility. Injecting such a large amount of money into the economy was bound to fuel inflation. That was a reasonable price to pay if the objective was to make Europe's economies stronger and more resilient. The problem is that there has been little effort to assess objectively what those hundreds of billions of euros achieved in the longer term, beyond boosting short-term demand and inflation.
Yet the EU has entered another energy crisis without having answered these questions. The outbreak of war in the Middle East and the resulting rise in energy prices have once again pushed eurozone inflation back to around 3%. The slowdown recorded in June may prove only a temporary respite, as Brent crude prices climbed back above $88 a barrel after the ceasefire in the Middle East collapsed. During the first two weeks of July, they rose by more than 20%. | Natural gas prices have also continued to rise, reaching almost €60 per megawatt-hour. That is well below the record levels seen in 2022, but still nearly twice as high as at the same time last year. European gas storage facilities are only 53% full, according to the KYOS platform, and still need to be replenished ahead of the coming winter. Meanwhile, the war in Ukraine has once again driven up European wheat prices, which have risen by 14% since the start of the year. Taken together, these developments resemble a milder version of the conditions seen in 2022, when inflation in the eurozone accelerated from 5% to more than 10%. | At the same time, European governments are preparing for a new wave of investment in defence, spending that could add further to inflationary pressures. That would not necessarily be a bad outcome if the investment strengthened Europe's industrial base rather than financing imports. The news emerging from European industry in recent weeks, however, has been far from encouraging, particularly in Germany's automotive sector. Germany's economy is large enough to drag the entire EU into stagnation, especially at a time when neither Italy nor France can point to any meaningful economic growth. That would leave Europe facing a much less welcome prospect: stagflation. | — Jagoda Marić, Journalist, Telegram.hr |
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| | | Berlin · Germany · CORRECTIV | Heating has become a luxury for millions of Europeans | When we think about the cost-of-living crisis, we often think of rising grocery bills or expensive housing. But across Europe, another basic necessity has become increasingly unaffordable: keeping a home warm. | CORRECTIV.Europe analysed Eurostat data on energy poverty and found that in 2023, more than 47 million people across the EU, Switzerland and Norway could not afford to heat their homes adequately – up from 31 million in 2021. Although the situation improved somewhat in 2024, more than 40 million people were still affected. These are around 9 per cent of Europe's population.
Behind these numbers are people like Andrea, a single mother in Germany living on a disability pension. To save on heating costs, she wore multiple layers of clothing indoors, limited hot showers, and constantly worried about her next energy bill. Like many others, she faced impossible choices between heating and food. | Experts warn that energy poverty is more than an economic issue. Living in cold homes increases the risk of respiratory and cardiovascular diseases, mental health problems and social isolation. Rising energy prices, low incomes and poorly insulated housing have turned adequate heating into a growing public health challenge – and a stark reminder that the cost-of-living crisis is ultimately about people's everyday lives. | Lilith Grull, International Reporter, CORRECTIV |
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| | Riga · Latvia · TVNET | Inflation in Latvia: No Quick Relief in Sight | The past year has been a difficult one for Latvia: average inflation over the last 12 months reached 3.4%, with the sharpest price increases affecting housing, utilities, transport and healthcare. | Predictably, one of the main reasons was the rise in fuel prices caused by military hostilities in the Middle East: diesel prices in Latvia increased by almost 19%, while petrol became nearly 16% more expensive. Although some goods became cheaper according to official statistics, inflation in Latvia remains 0.6 percentage points higher than in the euro area. | Unfortunately, the forecasts of The Bank of Latvia offer little reason for optimism. While inflation in the euro area is expected to decline gradually, inflation in Latvia may first rise to almost 4% in the coming years before falling back to the current level of 3.4%. | The Latvian authorities have several tools at their disposal to address these economic challenges. From 1 June, a reduced VAT rate was introduced for bread, milk, poultry and eggs, while in mid-June the Saeima extended the reduced excise duty rate on diesel fuel. | Since 2025, a memorandum agreed with the country’s largest retail chains has also been in force, introducing a “Low-Price Basket” and requiring cheaper products to remain available across key food categories. In 2026, the range of goods included in the basket was expanded. The eligibility criteria and amount of the housing benefit were also increased. | However, it is still too early to celebrate. Even these measures are likely to produce only an indirect and partial effect, while the Latvian authorities have few effective tools to address the main driver of high inflation — rising fuel prices. Even if lasting peace is achieved in the Middle East and the Strait of Hormuz is reopened, the positive impact on the economy may take many months, if not years, to materialise. | Andrejs Timofejevs, TVNET GRUPA journalist |
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| | Warsaw · Poland · OKO.press | Blueberry Buns Go Wild, Inflation Stays in Check | The price of sweet buns is shocking,” writes Dziennik Łódzki. “Has 25 złoty become the new normal for a blueberry bun?” asks Dziennik Zachodni. Meanwhile, the trade publication DlaHandlu.pl reports that “blueberry buns are breaking price records.” | July is blueberry bun season in Poland. These sweet yeast pastries filled with wild blueberries are a beloved summer treat. It is also the time of year when Poles ritualistically complain about rising prices. And with good reason: just a few years ago, these pastries were significantly cheaper. A decade ago, they cost only a third to a half of what they do today. | Does that mean inflation is currently a major political and media issue in Poland? Absolutely not. | Many of the articles about the price of blueberry buns have become almost ritualistic. Every summer we wish they were cheaper, and every summer we read stories about "receipt "shock"—when someone takes their family to an overpriced seaside fish restaurant, posts the bill online, and unexpectedly becomes an internet sensation for a day. | Inflation itself, however, has largely disappeared from newspaper headlines. For the past year it has remained within the National Bank of Poland’s target range. In June, it hit the target exactly, at 2.5 percent. Occasionally, the media briefly focus on fuel prices, but most people have simply accepted that instead of paying 4–5 złoty per litre of petrol, they now routinely pay 6–7 złoty. | The 20 percent inflation experienced during the pandemic has largely faded from public memory, even though it permanently shifted Poland’s price level upwards by more than in many Western European countries. | Over the longer term, however, the macroeconomic picture tells a different story. Real wages in Poland have increased over the past decade, with average real wage growth reaching 5.5 percent in 2025. The real problem does not lie in the aggregate economic indicators. On average, Poles are indeed becoming wealthier. It lies in inequality and at the bottom of the income distribution, among the poorest households. | Beyond the introduction of the universal child benefit a decade ago, very little has been done to address this issue. Yet inequality rarely makes headlines, and the poorest voters rarely decide elections. As a result, for those on the lowest incomes, increasingly expensive blueberry buns are becoming ever less affordable. And very few people seem interested in changing that. | Jakub Szymczak, journalist, OKO.press |
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| | Vienna · Austria · Die Presse | Cheaper groceries, but minimal impact on inflation | Since July 1, groceries such as yogurt, bread, and salt have become cheaper in Austria. The government has reduced VAT on selected staple foods. But the effect on overall inflation remains very small. | Austria's government has cut the VAT rate on selected food items such as bread, eggs, pasta, and salt from ten to 4.9 percent in order to ease the burden on households amid persistent inflation. In June, inflation stood at 3.2%,which was above the eurozone average (2.8%). Economists and the retail sector had voiced sharp criticism in advance arguing that the details of the scheme had remained unclear for too long and that consumers would not feel the savings anyway. | The Austrian National Bank (OeNB) has now examined whether the VAT cut has actually reached consumers since the beginning of July. The result: prices for many affected products fell noticeably in the first week of July, and the tax cut was "largely passed on to consumers."
However, the effect on inflation remains limited. The reason: According to the OeNB, the selected groceries account for only around 2.9 percent of an average household's expenditure. | Per item, the savings for consumers amount to just a few cents. Adjusting the products has cost retailers a total of around six million euros, according to the Austrian Retail Association (Handelsverband). The state stands to lose around 200 million euros in 2026. For the full year 2026, the OeNB estimates the effect at no more than 0.075 percentage points of CPI inflation — provided the price cuts are not merely short-term. | Melane Klug, economic journalist, „Die Presse” |
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| | Zagreb · Croatia · Telegram.hr | Anti-inflation recipe? Minister suggests you bake your own bread and rolls | None of the ministers were arrested. If we are to be cynical, that might be the only piece of good news from the saga of the Croatian Government's fight against inflation. True, the price growth hit this country harder than any other Eurozone member, but at least none of the four ministers who headed the economy portfolio—and led the fight against inflation from that position—ended up in handcuffs. Unlike some of their colleagues from other ministries. | Everything else, however, has been quite a disaster. Quite literally, a whole list of painful failures in attempting to somehow mute the narrative of constant, now five-year-long price growth—if not through actual measures, then at least through a PR spin. | Every monthly drop in the inflation rate—and there were such moments—is followed by triumphant announcements across all Government and ruling party channels, which are then accompanied by self-praise from top government officials. Following one such dip in the inflation rate, the Prime Minister declared: "This has proven the justification of the Government's package of measures and price limit policies." That was back in 2023. | Over these past five years, the Government appealed to retailers' social responsibility. It threatened inspections and other enforcement measures. It launched a website (graphically designed in the style of early 1980s databases) filled with price data and hilarious bugs (at one point, a single yogurt "rose in price" by 1,392 percent in a month, while certain other products were almost being given away for free) that met with a total lack of public interest. It questioned the statistical methods used by the Bureau of Statistics to calculate the inflation rate. The current Minister of Economy even suggested that citizens bake their own bread and rolls at home. | Nothing helped. Croatia is practically a regular among the top three Eurozone countries with the highest inflation rate. According to Eurostat data, the inflation rate in the Eurozone last year was 2.1 percent. In the entire EU, it was 2.5 percent. In Croatia, 4.4 percent. | If you ask the ruling party, Croatia did a brilliant job of protecting its citizens from rising prices—for which, in any case, the blame lies primarily with the conflicts in Ukraine and the Middle East, which apparently don't affect price increases elsewhere. | After all, the Government recently celebrated another small victory. Inflation, they say, slowed down in June. To 4.5 percent. | Jasmin Klarić, journalist, Telegram |
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| §03 · THE PODCAST | How inflation ravaged Europe | In this new episode of the EU Lens podcast we try to figure out why life just keeps getting more expensive. Inflation has been weighing on Europeans for years now, and few places feel it as sharply as Croatia, which has spent years near the top of the eurozone's inflation rankings. We walk through the three big shocks that got Europe here: the pandemic, the war in Ukraine, and the war in the Middle East. | |
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| We look at the European Central Bank's latest move to raise interest rates, and at something closer to home — why the price of pizza, coffee and beer just keeps going up. | Croatia's opposition has started calling this "Plenković's inflation," after the Prime Minister, and we dig into how rising prices became one of the country's biggest political fights. It's a full picture, start to finish — from the macroeconomics and the politics down to what inflation actually means for everyday life. |
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