Consumer prices in Europe have risen, leaving many people with less money in their pockets. This has defied efforts by politicians to lower prices. Many economists are warning that these increasing prices will only get worse, which will lead to many more complicated issues down the line, such as a recession.
The european Commission reported that consumer prices in the 19 countries that use euros as their currency rose at an annual rate of 10.7% in October. This is significantly higher than 9.9% in September, 4.1% a year ago and 10.7% a year ago.
The European Central Bank has been trying to weaken the euro and make inflation lower. To try and do this, it has been raising interest rates for the last 2 years. Recently, it announced that it would raise interest rates by 3/4 points for the second time in a row – which is the 2nd time since 1999.
But efforts to contain inflation by making loans and mortgages more expensive will hurt a country’s economy, increasing unemployment and diminishing investment. This will ultimately lead to decreased growth.
The conclusion of the International Monetary Fund was that European policymakers are going to have a tough time achieving a delicate balance of weak growth and high inflation.
Although the report states growth is at 0.2% during the last fiscal quarter, many economists expect Europe to eventually enter a recession. Several experts say they expect the third quarter of this year to see a downturn in growth.
The European Central Bank is concerned with the detrimental effects of inflation.
Christine Lagarde, the President of the bank, announced its latest interest rate hike last week. She hinted that they will start to ease up on this stance once inflation levels come down, but in the meantime, high levels of inflation are likely to encourage more aggressive pushback from board members.
Lucrezia Reichlin, a professor of economics at London Business School, says “I hope this will reinforce the divide within the governing council of the European Central Bank.” This quote is from a Eurostat report.
The combination of higher-than-expected inflation and output suggests that tight supply isn’t the only problem. Growing demand’s also contributing to this price increase.
Labor has become a recurring theme in the marketplace, and workers are discovering that it is increasingly difficult to provide for their families. The cost of energy has risen 41.9 percent in the last 12 months, while food prices have risen an alarming 13.1 percent. Russia’s exit from a deal with Ukraine means grain prices are likely to increase as well, hurting many countries that rely on Ukraine for food security.
We’re seeing signs of inflation in other sectors, too.
In the last year, more than half of the eurozone countries posted double-digit inflation rates, which include Germany (11.6%); the Netherlands (16.8%); Italy (12.8%), and Slovakia (14.5%). In other European countries like the Baltic states, rates exceeded 21%. France’s inflation rate stayed low at 7.1%.
One of the areas where Germany’s annual growth rate was able to recover during the third quarter (0.3%) was consumer spending. In Italy, the economy grew 0.5% while Sweden grew 0.7%. Overall production during this period of time slowed from the previous three-month period, with France and Spain rising just 0.2% each and Austria and Belgium shrinking by 0.1%.
Third-quarter growth in the European Union was 0.2%. This was exactly the same as the third-quarter growth in the eurozone.
The Consumer Price Index in the United States increased by 8.2% from September 2018 to September 2019. In Great Britain, the inflation rate is 8.8% during the same time period.
Central bankers have remained determined despite the market volatility that has taken place this year. We expect the Fed to raise rates by a three-quarter of a percent when they meet on Wednesday, and it would be their sixth rate increase this year. The Bank of England is also expected to raise rates by that amount when they meet on Thursday.
Higher interest rates in the US are affecting countries all around the world. For emerging nations with a large debt to American lenders, an already heavy burden becomes even heavier. In addition, those countries who must import American products or essentials like food, oil and natural gas- which are often priced in dollars- see them as much more expensive. The end result is that these developing nations get less richer.
Some economists are urging for a tough line on inflation, but there are now more voices questioning whether central bankers are going too far, too fast. Too high of interest rates may actually increase the shortage of food and other basic resources, as it could make companies hesitant to invest in new production.
Production in July, August, and September was 0.6 percent less than it was in the previous three months.
Claus Vistesen, the chief economist for the eurozone at Pantheon Macroeconomics, said in a note released on Monday that “the slowdown may be even worse than the headline suggests.”
