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Updated on: Wednesday, December 22, 2021, 04:28 PM IST

Teji Mandi Explains: No way home for Europe, from inflation

Teji Mandi Explains: No way home for Europe, from inflation |

Teji Mandi Explains: No way home for Europe, from inflation |

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Winters in Europe are special because of the Christmas season. This time, however, the situation would be quite similar to that of the 2020 Christmas season. Continue to read why!

What’s Happening?

Omicron, the new variant of COVID-19, has brought the entire world on its toes yet again. The virus is rapidly spreading and has scared the European countries the most, reminding them of horrific events in the past. Since COVID-19 cases rise in the indoorsy winter months, several European countries have reimposed restrictions over the weekend, just before the best time of the year.

Christmas is around the corner, and the Netherlands was the first country to quickly take strict action. The country announced the closure of schools and non-essential shops until at least the middle of January. This will cause pressure on the economic activities of the country, given that inflation is already on a roll.

In other European countries, the central governments have started to put travel restrictions. Meanwhile, the highest cases of Omicron were seen in the UK, which has still not imposed any lockdown given the Christmas season and that there are less severe cases.

Why Should You Care?

Omicron-led restrictions are going to weigh pressure in Europe, which is already suffering from rising prices and stagflation (slow economic growth). If lockdowns are imposed in European countries, then low supply will cause a further increase in the prices. For instance, demand for natural gas prices is ripe. On Monday, the gas price in Europe rose 9%, on top of a 600% surge this year itself. While Europe is a separate continent, it still affects India at a global level.

Now, if we put the light on what’s happening in the UK, the headline inflation has reached the highest in a decade. Transport costs were the biggest contributor to the rising inflation there. Moderate inflation is understandable, but high inflation will lead to higher credit costs and the inability to pay the debt. This is one of the reasons why the stock market has been gloomy in India because foreign investors are taking out their capital at this time of rising inflation.

What Lies Ahead?

Costs in most European countries are mounting because a quarter of government debt is tied to retail prices, which have spiked this year. It’s a double-whammy for Europe! As for India, inflation is rising here too, but the RBI could still control the situation given that it has not hiked the policy rate for a long time. However, Europe maintains strong business ties with India. If it’s going down, India will have to bear the brunt too.

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Published on: Wednesday, December 22, 2021, 04:28 PM IST
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