Store shelves may be empty during the Christmas shopping season :: Dienas Bizness
October 16, 2021
In much of the world, inflation has raised its head against the background of pandemic constraints, high demand, supply problems, raw material shortages and other factors. For example, in September, annual inflation in the euro area rose faster 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, for example, with high energy prices not really seeing an end yet, this winter is likely to pose major challenges for many companies. One is that prices and bills are likely to rise. It is also another fact that with new pandemic constraints, supply disruptions, staff shortages, potentially lower blood growth and some raw material shortages, some parts of the world may be facing shortages of goods or services (a recent example is 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 traditionally. Manufacturing companies around the world report that, despite strong demand, they are slowing down their production. 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 resilient 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-shelter inflation during a 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 incentives and the imposition of additional money by governments on 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 both 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 Europe’s energy crisis and higher inflationary pressures can be just as fuel to re-ignite a wide range of European disputes.
It would be a very bad scenario if what was happening caused another kind of food crisis. Europe can basically provide food for itself, and as a whole it is prosperous. This means that there will probably be something to put on the tables. In the worst case scenario, wartime decisions are not ruled out, for example, food can be dispensed in certain portions, some price controls are imposed and it is stockpiled to meet the needs of its 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 should 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 weather conditions.
Inflation above 10%
Traditionally, price volatility, which can erode people’s wealth at almost the same moment, is more pronounced in the markets of developing countries already mentioned. It can already be seen that the rise in consumer prices is quite rapid, which forces the central banks of such countries to make painful decisions to raise rates. Tighter monetary policy is the answer to rising inflation. However, higher interest rates are blowing against economic growth, which it is understandable that everyone wants to protect with the current pandemic. The situation is complicated enough.
In terms of developing countries, one can highlight a large economy close to Europe, such as Turkey. There, in September, annual inflation has just risen to 19.6%, 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 activities. 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 in 10 years it is already 320%. 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 was at 1.6%.