Euro crisis as inflation climbs to 10 percent – countries face crippling price hikes | Politics

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Euro crisis as inflation climbs to 10 percent – countries face crippling price hikes | Politics


Investment expert on high annual inflation rate

Data this week showed inflation in Europe has risen, with Germany reaching its highest level in decades. But the European Central Bank has maintained its “transitional” inflationary position. The ECB could set policy for a relatively short period at this month’s meeting given the heightened uncertainty, President Christine Lagarde said.

In Germany, an inflation rate of over 5% caused a sensation last November.
There are now euro countries where prices go up quite differently.

And these are countries that fall under the EU’s monetary policy.

There is already speculation as to who will be the first to post double-digit inflation.

This concerns the Baltic States: in Latvia the inflation rate in November was 7.4%, in Estonia 8.4% and in Lithuania 9.3%.

Specifically, Lithuanians complain, as here, that gasoline has become so expensive, including fuel oil and gas. But the price of milk in supermarkets has also increased by more than 30 percent, reports Petras Cepkauskas of the Lithuanian price comparison platform Pricer.

Eurozone countries threatened by surging prices as inflation continues to soar (Image : GETTY)
Almost all food prices have gone up. Wages have also increased, but less than prices.
Jan Körnert, professor of economics at Greifswald who has dealt specifically with the Baltic countries, believes that the large differences in inflation rates in the euro area could be “explosive”.

On December 16, the ECB will consider how monetary policy should react to inflation.

However, the central bank governors of the Baltic countries have yet to press the ECB Council specifically for the central bank to tighten its monetary policy.

Michael Schubert, ECB expert at Commerzbank, said: “So far the Balts have been relatively calm. “

Gediminas Šimkus, head of the Lithuanian central bank, said: “As a small, very open economy, we have imported most of the current rise in inflation.”

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This was due to “a sudden increase in energy costs and considerable pressure on prices due to global imbalances between supply and demand in other markets”.

Estonian central bank chief Madis Müller made a similar statement. These were mostly temporary effects, but you have to be careful.

Mārtiņš Kazāks, the head of Latvia’s central bank, said the ECB should ultimately shape monetary policy for the euro area as a whole, not for individual countries.

However, he is convinced that the central bank “will take all necessary measures to achieve the monetary policy objective of an inflation rate of 2% in the medium term”.

The Institute for the World Economy (IfW) in Kiel investigated why inflation rates in the Baltic countries are still significantly higher than in Germany and proposed two sets of factors.

On the one hand, the starting position is different, explains IfW expert Klaus-Jürgen Gern.

It was typical for countries that experience high growth and still have lower per capita income that inflation rates are higher.

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Euro: ECB could set policy for relatively short period at this month’s meeting given uncertainty (Image : GETTY)

In the Baltic countries, growth rates are higher than in Germany, and at the same time unemployment is low. Salaries and unit labor costs have also increased faster than in Germany. This is why countries had higher inflation rates even before the crisis. Rates between 3 and 5% are quite normal there.

In contrast, prices in the Baltic countries have reacted more and more quickly to rising commodity prices on world markets.

The increase in energy prices in the Baltic countries has recently been 25 to 30 percent, compared to around 18 percent in Germany. The reasons are among others: In Germany, taxes and duties represent a higher share of the price of gasoline.

That is why gasoline is around 10% cheaper at petrol stations in the Baltic States than here, but it reacts to any increase in the price of crude oil with a higher percentage increase.

This is being felt right now given the rise in oil prices since last year.

When it comes to the price of natural gas, on the other hand, prices for consumers in the Baltic countries simply reacted more quickly to the world market price than in Germany – in Germany the price adjustment is sometimes delayed by long periods of time. contractual periods.

In this area, German consumers could still face price increases that the Baltic countries have already experienced.

This effect is reinforced by the fact that the energy and food expenditure in the budgets of the citizens of the Baltic States represent a larger share than in Germany – and are therefore included with a greater weight in the inflation rate, underlines the Latvian banking economist. Martiņš Āboliņš.

Overall, in the Baltic countries of course, as is the case here, the question is whether the rise in inflation is only “transient”, that is to say temporary, as assumed by the BCE, or whether it’s going to last longer, Gern says.

The ECB also recorded the anomalies.

Countries with recently higher inflation, such as the Baltic States, are generally “smaller economies that are more sensitive to global energy price shocks, resulting in sharper increases in domestic energy prices.” energy, ”the central bank said.

In addition, in some cases these economies have progressed further into the phase of rapid economic recovery after the pandemic shock of this year, and therefore experienced stronger economic growth and higher wage increases, which may also have had an impact on general consumer price inflation: in any case, these economies, like the euro zone, are expected to experience a notable weakening of inflation during the year 2022. “

Additional reporting by Monika Pallenberg

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