Europe is experiencing a period of sustained inflation which should have a negative impact on most European households. Rises in the cost of goods and services in June, as calculated by Eurostat, the EU’s statistics collection body, beat observers’ expectations, with consumer prices jumping 8.6% from at the same time last year. Lockdown-era government spending, coupled with soaring energy and commodity prices following Russia’s invasion of Ukraine, has driven up production costs across the country. continent.
Inflation is an increase in the price of goods and services over a period of time. Inflation can be taken in the broad sense of an increase in prices or an increase in the cost of living in a given country. Inflation can also be defined more narrowly as the increase in the cost of specific goods and services, such as a rise in the price of food or a discount (IMF). Wages tend not to rise as quickly in times of high inflation, so people see their purchasing power diminish. Inflation also eats away at the “real” value of people’s savings.
Inflation can occur as a result of an increase in the money supply, when production costs rise, or when demand for a product or service increases unexpectedly. The hoarding of goods as stores of wealth by countries anxious to protect themselves from the coming economic shock may trigger further shortages as international supply lines seize up. Inflation is a sign that the economy has overheated and needs to be “cooled down” by a series of deflationary measures such as raising interest rates, lowering government spending and limits on wage increases. Failure to curb inflation has proven disastrous for governments and the people they govern. Social and psychological trauma almost always accompany hyperinflation. Scenes from Weimar Germany are familiar to many, where children were photographed playing amid stacks of papiermark, a currency that was almost worthless in 1923, a decade before Israel came to power. Hitler. Inflation has also been blamed for recent revolutions in Tunisia and Egypt.
The spike in energy prices following Putin’s war is at the heart of the inflationary spiral in Europe. An increase in the price of fuel brings with it the price of everything else. Irish economics correspondent Robert Shortt predicts that “as long as the war in Ukraine continues, there is unlikely to be any hope of energy prices stabilizing” (RTÉ News). Although the EU plans to increase its stock of renewable energy in the medium and long term, shorter-term alternatives to Russian gas and oil are needed to keep European economies afloat, such as those of Slovakia which imports 85% of its gas from Russia (Euractiv) . Any given country risks alienating its neighbors if they prevent their own energy supplies from leaving their borders. Governments will also face the moral and political hazard of dealing with oil-rich but undemocratic Middle Eastern leaders. Europe’s energy rush amid record inflation is bound to be political.