Explained: Europe caught in highest inflation in nearly 30 years

A record-high inflation rate of 4.9 percent could blight economic recovery across the 19-nation Eurozone, with experts predicting it could rise even higher with a new coronavirus variant forcing governments to implement fresh travel and trade restrictions.

The number is the highest since 1997 when the European Union started collecting data in preparation for the launch of the Euro in 1999. More significantly, it’s at a 29-year-old high in Germany, historically one of the best-performing economies in the block.

High energy prices have been cited as the main cause for the spike in inflation, which has also led to social tensions in several parts of Europe.

A European Central Bank breakdown of data by country shows Lithuania at the top of the pile with a staggering 9.3 percent inflation, followed by Estonia with 8.4, Belgium with 7.1 and Germany with six. On the lower side, Spain’s inflation stood at 5.6 percent and France 3.4 percent.

The worrying data comes amid a wave of violent protests in most European countries against new closure measures imposed by countries to confront the latest mutation of the coronavirus named Omicron. The protests, which have clear social and economic roots, could be exacerbated further if governments move towards tightening the screws on the purchasing power of European citizens.

European experts expect inflation rates to continue to rise over the coming months, contrary to the European Bank's previous assertion that the high inflation matter is a “passing cloud”. Eric Dorr, a French economist, told the French daily Le Monde: “Many elements tell us the high rates of inflation are not temporary.”

French economist Matthew Blanc attributed this spike to the rise in fuel prices, explaining that "more than half of the price hikes in France are due to the rise in energy prices, and they contribute to our reaching record levels faster than expected". Data from the European Union Statistics Office Eurostat also show that the rise in inflation was driven by high energy prices, besides tax increases and growing price pressures as a result of supply bottlenecks that limit industrial production, especially in the automobile industry.

On Monday, Spanish Central Bank Governor Pablo Hernandez de Cos warned against any "premature withdrawal of monetary stimulus", coinciding with the publication of the European Commission's results of its survey, which showed that confidence in the economic conditions in the Eurozone declined last November under pressure from deteriorating confidence in the economy.

But US Federal Reserve Chair Jerome Powell struck a contrary note, saying it was time to abandon the term "transitory" when describing price growth, opening the door to a faster withdrawal of monetary stimulus.

An explosion of protests?

Observers say the streets of these countries will likely witness new protests in addition to those they have been experiencing over the past few weeks, mainly against the imposition of new precautionary measures.

In France, for example, violent protests erupted in the islands of Guadeloupe and Martinique against the imposition of a "health passport" on workers in the health and social services sectors. Under the new mandate, healthcare workers are required to carry a health pass, or vaccine passport, for access to public buildings, including restaurants, cafes and libraries. Distrust of the French government runs deep in Guadeloupe and Martinique, where rampant use of the pesticide chlordecone in banana plantations has been officially established as the cause of prostate cancer in over 90 percent of the adult population.

In Germany, the powerful workers’ unions are demanding an increase in salaries due to the weakening of purchasing power caused by inflation. A request that the government answered with a slight salary hike of 0.9 percent, which the French economist Eric Dore does not consider capable of ending the issue. He does not imagine that “the weakening of purchasing power caused by inflation will pass without new demands for an increase in salaries”.

This is in addition to the possibility that these economic conditions will contribute to reviving the waves of protests that the world, and Europe in particular, has known throughout 2019. Belgian sociologist Geoffrey Bleiers mentions in his study “The pandemic as a battlefield” that “the health pandemic has devoted the social problems that were the subject of the protests of the period prior to their occurrence,” and that “these protests can return strongly in the post-general closure stage”.

In the same context, the Carnegie Institution predicted in a study published last year: “With the painful economic effects caused by the pandemic, and exposing the great imbalance in governance, the area of popular anger began to escalate, which will be expressed in large-scale protests that will occur in the months following the lifting of precautionary measures.”