The economic condition of Europe is far worse than the United States, as its inflation rate is soon going to hit double digits. It has already a new record high, and it will be up to the ECB to control the rising rates. The only option now would be to raise interest rates. Even though it would push the economy to a recession, the authorities cannot just let inflation be out of control.
Europe is in an economic crisis as inflation peaks
The gas prices are going haywire in Europe, and several hikes are expected by the end of this year. CPI shows that prices of everyday goods and services are also increasing rapidly. The most suffering is from middle-class households who do not have much headspace to accommodate rising bills. Businesses are also finding it difficult to make profits and are burning through cash reserves like crazy.
Currently, Europe is growing through a stagflation phase where prices are rising, and the growth is not negative yet but slow. Now, if the ECB raises interest rates, inflation will definitely come under control, but it will only push the economy towards recession by making the growth negative. And if Europe brings more stimulus checks or prints more money, then inflation will go over the roof and threaten the authorities’ capability to control price hikes.
What might happen?
The most likely scenario would be interest rate hikes and a subsequent decrease in inflation rates. However, it will be essential to see how aggressively ECB raises the rates and if they adopt a similar approach to the United States. Unless they do, minor hikes won’t affect the inflation rates much, and the middle and lower class is going to suffer.
There are reports that the ECB will raise interest rates by 75 bps next week, and unless things don’t come under control, they won’t be moving to a 50 bps hike. Countries using Euro are already inflation more than 9%, which is expected to jump higher in September. So, the recession is also very likely in Europe as the ECB has no options left other than raising interest rates.
What are your thoughts as inflation peaks in Europe and is soon expected to hit double digits? Let us know in the comment below. And, if you found our content informative, share it with your family and friends.
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