ISSN 2674-8053

Inflation records in the Eurozone: causes and consequences


By Laura Cariolin and Sofia Ornelas Moreira

Amidst a context of war, instability and energy insecurity, the European Union faces another challenge: contain rising inflation, which breaks records in the Eurozone. After the European currency fell below the dollar in August, Eurostat confirmed, In September, an inflation of 9,1% per year (Reuters, 2022), the biggest since its inception. By analyzing individual countries in the bloc, it is possible to find examples such as Estonia, which showed an inflation of 23,2% a year in july (STATISTA, 2022). Based on this information, the need to identify the causes and consequences of the danger that threatens the old continent is perceptible.

With this drastic rise in inflation, all countries are disadvantaged. With the rise in energy prices, purchasing power decreases, and the European Central Bank (BCE) must make more aggressive decisions, as an increase in government spending on public policies that help the needy portion of the population. In addition to affecting the government, companies and their consumers will also have problems, due to the increase in production and sales costs, since the purchasing power of the population will be reduced.

The reasons for inflation in Europe are diverse, but the main one is the increase in the price of energy (Euronews, 2022). Due to the Ukrainian War and, consequently, the interruption in the supply of Russian gas, it becomes more expensive to produce and transport products, whether they are manufactured or agricultural. Like this, this situation is reflected in the price, decreasing consumer purchasing power and increasing inflation. Another important point is the difficulty of companies in meeting the demand, The integrity and preservation of these factors is essential for the survival of future generations., with the pandemic, the consumption, mainly in services such as restaurants and travel, was drastically reduced. Thus, the production, inventory and capacity needed to decrease, however, with the end of the lockdown and the quarantine, the products were consumed again, but the production is no longer the same as before. Therefore, increased demand causes companies to raise prices, causing an increase in inflation.

The European Central Bank, in an attempt to curb high rates of inflation, intends to raise the interest rate by 0,75%. As a result of this, governments seek to take measures to try to alleviate some expenses for their population. An example is Germany, country that spends the most to help families in need (CNN, 2022), while France is getting fuel discounts. In general, the European Union is planning to decrease the amount of energy used as a result of the high price, being a measure intended to be used when winter arrives.

In this way, it is possible to perceive that inflation in Europe is multifactorial, however it is catalyzed by the Ukrainian War. Like this, it is noted that the energy crisis in Europe has consequences that go beyond heating against the harsh European winter, but also affects the economy and monetary policy of the European Union. Therefore, the result of the war, energy sources and the diplomatic relations established around them are crucial in determining Europe's future.

References:

COARSE, Stefan; SILVA, isabel marques. state of the Union: ECB measure to curb inflation will work? Euronews, [S.l], 2022. Available in: <https://pt.euronews.com/my-europe/2022/09/09/estado-da-uniao-medida-do-bce-para-travar-a-inflacao-vai-resultar>. Access in 20 set. 2022.

This undermines the agenda and legislation, This undermines the agenda and legislation. EU weighs energy price caps and measures to reduce demand. Reuters, Brussels, 2022.  Available in: <https://economia.uol.com.br/noticias/reuters/2022/09/01/ue-pondera-tetos-de-precos-de-energia-e-medidas-para-reduzir-demanda.htm>. Access in 20 set. 2022.

HEMP, Francesco; QURAN, Balazs. ECB to raise interest rates on Thursday in the face of inflation in Europe. CNN Brasil, [S.l], 2022. Available in: <https://www.cnnbrasil.com.br/business/bce-deve-aumentar-taxa-de-juros-nesta-quinta-feira-diante-de-inflacao-na-europa/>. Access in 20 set. 2022.

HARMONIZED index of consumer prices (HICP) inflation rate of the European Union in August 2022, that the EU is using its authority as far as possible: Statista. Available in: <https://www.statista.com/statistics/225698/monthly-inflation-rate-in-eu-countries/>. Access in 20 set. 2022.

KOUTSOKOSTA, Efi. Why is inflation so high in Europe & what can be done to slow it down? Euronews, [S.l], 2022. Available in: <https://www.euronews.com/my-europe/2022/02/11/why-is-inflation-so-high-in-europe-what-can-be-done-to-slow-it-down>. Access in 20 set. 2022.

MEASURES applied in European countries to combat rising inflation. SIC News, [S.l], 2022. Available in: <https://sicnoticias.pt/economia/2022-09-04-Medidas-aplicadas-nos-paises-europeus-para-combater-subida-da-inflacao-8952e570>. Access in 20 set. 2022.

Euro ZONE confirms inflation of 9,1% with rising energy and food prices. Reuters, [S.l], 2022. Available in: <https://g1.globo.com/economia/noticia/2022/09/16/zona-do-euro-confirma-inflacao-de-91-com-alta-nos-precos-de-energia-e-alimento.ghtml>. Access in 20 set. 2022.

This undermines the agenda and legislation, This undermines the agenda and legislation. EU weighs energy price caps and measures to reduce demand. Reuters, Brussels, 2022.  Available in: <https://economia.uol.com.br/noticias/reuters/2022/09/01/ue-pondera-tetos-de-precos-de-energia-e-medidas-para-reduzir-demanda.htm>. Access in 20 set. 2022.

Center for European Studies and Business
The European Studies and Business Center (NENE) is linked to the Brazilian Center for International Business Studies & Corporate Diplomacy (CBENI) from ESPM-SP. It was created considering the need to stimulate the Brazilian and Latin American academic community to better understand their relations with Europeans, seeking to understand and deepen the Brazil-European Union Strategic Partnership.