In much of the world, inflation has rallied against the backdrop of pandemic constraints, high demand, supply problems, raw material shortages and other factors. In September, for example, annual inflation in the euro area rose sharply to 3.4%, the highest in 13 years.
In Germany, for example, inflation has reached 4.1%, the highest in 29 years.
In any case, with high energy prices, for example, not really coming to an end, this winter is likely to pose major challenges for many societies. One is that prices and bills are likely to rise. Another factor is that with new pandemic constraints, supply disruptions, labor shortages, potentially slower economic growth and shortages of raw materials, some parts of the world may be facing shortages of goods or services (a recent example being the UK fuel crisis).
Thus, as the Christmas shopping season approaches, it is possible that even in industrialized countries, store shelves will be empty than usual. Manufacturers around the world are reporting that they are slowing down despite strong demand. A similar situation exists, for example, for builders, who have to buy many things more expensive and wait longer. Current judgments on the energy crisis not only in Europe but also in China.
Price pressures against the backdrop of expensive materials and supply problems have already proved more sustained than previously thought (eg in the first half of the year). There is also a lot of talk about the fact that higher inflation in the world may not be so temporary. Overall, however, the basic assumption remains that post-reload inflation during the pandemic should nevertheless subside, as determined, for example, by current supply chain challenges. As inflationary pressures have persisted for longer, it is also becoming increasingly difficult to justify central bank stimulus and additional government spending in the economy. On the other hand, economic growth expectations are also being adjusted downwards. As a result, the risk of a stagflation scenario is being raised more and more loudly.
Threats to social stability
Risks to social stability may increase with greater challenges and often less satisfied societies. Tensions can escalate into conflicts within and between countries, with speculation that differences in economic performance will exacerbate cross-border tensions and lead to additional trade tariffs, investment sanctions, and so on. Experts from the Financial Times, for example, say that the European energy crisis and the pressure of higher inflation can be just as fuel to re-ignite a wide range of disputes in European countries.
It would be a very bad scenario if what was happening caused another kind of food crisis. Europe can basically provide for itself, and as a whole it is prosperous. This means that there will probably be something to put on the tables here as well. In the worst case scenario, wartime decisions are not ruled out, for example, food can be served in certain portions, some price controls are imposed and it is stockpiled to meet the needs of its own people first. Developing countries are more likely to do so (rising prices will be particularly painful for the already poor).
In 12 months, world food prices have risen by a third, according to the United Nations. In developing countries, a much larger share of income must be spent on food. In any case, a wider food crisis would not be a joke – sometimes the same so-called Arab Spring experienced 10 years ago is directly linked to rising food prices. With all this, there has been a migration of people to Europe, which may now intensify again. The situation on the food inflation front can always be exacerbated by the weather.
Inflation above 10%
Traditionally, price volatility, which can erode the wealth of the population at almost the same moment, is more pronounced in the markets of developing countries already mentioned. It is already clear that the rise in consumer prices is quite rapid, forcing the central banks of such countries to make painful decisions to raise rates. Tighter monetary policy is the answer to rising inflation. It is true that higher interest rates are blowing in line with economic growth, which is understandable to everyone wanting to protect with the current pandemic. The situation is complicated enough.
In terms of developing countries, a large economy close to Europe, such as Turkey, can be highlighted. There, annual inflation has just risen to 19.6% in September, which is about four times higher than the country’s central bank wants to see. It must be said, however, that the case of Turkey is quite specific. There, the country’s leader, Tajip Erdogan, has a great deal of influence over the central bank’s actions. As a result, the Turkish central bank cut its main currency refinancing rate even last month.
As a result, the price of the euro in Turkish lira has also risen by almost 15% this year, but it is already 320% in 10 years. Inflation has also reached an impressive 9.7% in a giant economy such as Brazil. Over 10% of it is already located, for example, in Ukraine. In Russia, on the other hand, it was at 6.7% in August.
In Latvia, inflation rose to 4.6% in September, according to preliminary Eurostat measurements. It was already at 6.3% in Lithuania and at 6.4% in Estonia. Back in April, annual inflation in Estonia stood at 1.6%.
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