Households and businesses in both the EU as well as in the US are now under strong inflationary pressures. The increase in inflationary pressures is directly related to the course of the pandemic. During 2020 because of the restrictive measures to tackle the pandemic Covid- 19 inflation fell.
In the context of the international economic recovery, prices are rising with a tendency for further growth. But as the international economy, transport and supply chain are improved over time, prices will have to correct.
The worries
In practice, however, the economic planning of households is disorganized, mainly in countries that have high energy costs and at the same time import energy, due to imported inflation.
- If the imported inflation is combined with the expansion of the creation of a trade deficit, then the lack of competitiveness shown by these fundamentals will inevitably enter the prices of products.
- If a country or a country-member imports fuels and energy then inevitably the aid of inflation will affect the total economy. For example, the EU is much more expensive in regards the energy cost compared to the US.
- The point is, energy price hikes will last for at least two years.
- By the end of the pandemic Covid-19 and the gradual opening of economies will cease to exist the political protection that is provided by governments to a large proportion of workers incomes, unemployed, businesses and farmers as it was occurred during the pick of the pandemic Covid- 19.
The households and small-medium business of low incomes and those that their incomes decreased due to the pandemic will face a big problem in terms of their basic cost of living.
ECB Policy
In conclusion we can say that an economy of a member country of Eurozone for the smooth operation of the private sector, increase of the investment rate and management of public and national debt respectively, should have stability in inflation of about less than 2%. The statutory charter of ΕCB in terms of inflation it stipulates.
Given that the President of the ECB identifies as the goal of ΕCB annual inflation 2% over time shows that will allow exceeding the target for annual inflation of 2% in long run horizon for as long as is needed and at the end of this long run horizon inflation will return to below 2%.
The phenomenon of inflation
Rising inflationary pressures are an international phenomenon.
USA
In June – July 2021, the US inflation moved to 5.4% per year. The corresponding period for 2020 was at 1% per year.
In January 2021, it was 1.4% annually, in April 2021 4.2%, in June – July inflation was 5.4% per year. While in August 2021, it stabilized at 5.3% per year.
EU/Eurozone
In July 2021, inflation reached 2.2% per year and in August 3% per year.
UK
In July 2021, inflation reached 2% per year and in August at 3% per year.
Germany
In August 2021, inflation reached 3.9% per year, a decade-long record. The record inflation in Germany is due to the increase of certain VAT rates. The green energy transition costs and its costs are shared accordingly. The market system pollutant transactions has increased and prices have risen relative to other member-countries of Eurozone.
The tapering program may have been implemented by the ECB in quality terms the quantitative easing policy remains the same because now the ECB buys the same quantities but only in government bonds rather than both of government and corporate bonds as before. That is why Germany is pushing for a complete end to its monetary easing policy.
Energy Solutions to reduce inflation
As energy costs rise and especially in gas the situation tends to get out of control. The international price of gas has increased by another 30% compared to the existing increases that have taken place since the beginning of the year.
A solution to avoid high energy costs mainly from the increase in gas prices in the international economy is:
- To restore the plants of electricity production which use in their production process coal, which is now cheaper than producing the electricity with the use of natural gas.
- To increase the electricity production by increasing the operation of nuclear power plants.
- Member governments to issue a green bond as Italian government did for financing the acceleration of the energy green transition.
- Direct and complete electrification of buses and taxis in the member-countries of the European Union.
In this way our last two proposals will drastically reduce the huge size of the inveetment that should be made in renewable energy and energy storage technology in a very short time.
Otherwise many small and medium-sized enterprises as well as low-income households due to high energy costs will find themselves in an extremely difficult position and with their budgets under even more pressure.
