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INFLATION PRESSURE

Economic Watch: Europeans to encounter "expensive" Christmas as inflation cuts personal budgets

Economic Watch: Europeans to encounter 'expensive' Christmas as inflation cuts personal budgets
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· Europeans are feeling the pinch of making ends meet as the increasing cost of living and rising energy prices bite

By Agencia de Noticias Xinhua
viernes 31 de diciembre de 2021, 08:21h

VALLETTA (Xinhua).- Most families in Europe are tightening their budgets while focusing on covering essentials, and it is uncertain whether they will be willing to splurge more during the forthcoming "expensive" Christmas season. Retailers are concerned that inflation would further bite into consumer spending. The European economy is expected to encounter setbacks in its recovery as some countries have introduced fresh measures to curb the fast spread of the COVID-19 Omicron variant.

INFLATION PRESSURE

"I have seen massive differences in the prices of groceries, and I am now spending almost double what I used to spend to feed my family every week," Jade Sciberras, a company's secretary from Malta, told Xinhua.

Prices have been increasing steadily since the beginning of this year, including the cost of water and electricity, said the 34-year-old mother of two.

The view was echoed by Stefan Bilocca, a father of three children. The 44-year-old engineer said that no matter how hard his family tried to cut down on extravagances like eating out or ordering take-outs at home, his and his wife's salary could not last till the end of the month.

The year-on-year inflation in the eurozone hit 4.9 percent in November, a record high, according to Eurostat, the statistical office of the European Union (EU). Surging energy prices are largely to blame for the spike.

France recorded a 3.4 percent rise in inflation in November, its highest level in 13 years. Nor can Germany insulate itself from the soaring inflation as the figure last month surpassed the five-percent threshold for the first time in three decades.

This has rippled through Britain even it has already left the EU.

"The impact of labor shortages, rising commodity prices and transportation costs have now very clearly taken their hold on consumer prices," said Helen Dickinson, chief executive of the British Retail Consortium, a trade association representing UK retailers.

BUDGET TIGHTENED

The European Central Bank (ECB), however, insisted that the steep rise in inflation should soon come to an end and was reluctant to increase its interest rate.

"We assume that in November the peak of inflation development has been reached and that inflation will gradually decline again in the coming year, in the direction of our inflation target of two percent," ECB executive board member Isabel Schnabel told German media ZDF.

Some economists, however, still expect interest rate hikes in 2022.

"Inflationary pressure is likely to remain high in the coming year," said Gunther Schnabl, director of the Institute for Economic Policy at the University of Leipzig, Germany.

For 2022, he considered three to four percent realistic, citing the ECB's zero interest rate policy and massive bond purchases.

Residents in Europe are reasonably braced for tightened budgets for Christmas and the coming year as the inflation shows no signs of dropping.

In addition, disruption of supply chains, labor shortage and high transportation costs have compounded the plight for retailers, presaging a gloomier Christmas.

Henry Cordina, owner of a grocery store in Malta, has already been informed by many of his clients that they will not be organizing large meals for friends and family this year, for the health authorities' safety guidelines in place.

RECOVERY UNCERTAINTY

Christmas is traditionally a golden time for binge shopping and amusement, but there is little for Europeans to relish, allowing for rising costs and declining purchasing power. Businessmen are worried that the likely fifth wave of COVID-19 infections will dampen the economic rebound.

Some European countries including France and Britain have already announced new COVID-19 restrictions, which would possibly hurt their economic growth in the short term. Central banks in Europe remain hesitant about tightening monetary policies.

Oxford Economics said in a recent report that the rapid spread of the emerging Omicron variant around the globe and the speedy re-imposition of restrictions by governments "underscores the bumpiness and unpredictability of the path to normalcy."

"If Omicron becomes the dominant strain, causes more serious side effects, and reduces vaccine efficacy ... global GDP growth next year could slow to 2.3 percent," predicted the UK thinktank.

The Financial Times said in a recent article that "the recovery path may not be as straightforward as originally thought."

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