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Energy prices and inflation: The economy is facing a violent storm



Berlin. The fear that Russia will turn off the gas supply is growing. Another price hike is imminent. The euro creates additional problems.

Going to the supermarket these days creates a bad mood: the bill is noticeably higher than the last time you went shopping. The stopover at the petrol pump also spoils the mood. Prices are rising across the board, net income is falling.

Michael Backfisch, Political Correspondent

Photo: Reto Klar

The EU Commission has now corrected the economic forecast for Europe significantly downwards. In the euro zone, the inflation rate rose to an all-time high of 7.6 percent. Germany comes off particularly badly. In Germany, the rate of price increases in the current year will be 7.9 percent, growth a measly 1.4 percent.

One thing is certain: Germany and Europe must be prepared for a perfect storm in which various crises will intensify. In the course of the Ukraine war, fears are rampant that Russia will soon turn off the gas supply completely and that energy prices will continue to explode.

High transport prices choke off world trade

Rapidly rising energy prices are making production more expensive for companies. They pass the costs on to consumers. The price surge, in turn, alarms the unions – they try to compensate for the shrinking net budgets with high wage demands. There is a risk of a wage-price spiral that would fuel inflation. Another braking factor: High bills for oil, gas, petrol, diesel or kerosene drive up transport prices, which chokes off world trade.

The corona crisis had already thrown sand into the gears of the global economy. Global lockdowns caused consumer demand to collapse. Shipping companies cut their international shipping lines. Supply chains broke off. To this day they are not intact.

Oil and gas are billed in dollars, which makes energy imports even more expensive

The fall of the euro against the dollar is an additional obstacle. In the past few days, the US currency has even briefly been worth more than its European counterpart. This was mainly due to the fact that the US Federal Reserve had already raised key interest rates in several steps to counteract the skyrocketing inflation. The European Central Bank (ECB), which grossly underestimated the risk of price increases, is lagging behind.

In addition, international investors are concerned that Europe’s economy will be dragged further down by its heavy reliance on Russian gas. Since oil and gas are mainly settled in dollars and the EU countries have to import a lot of energy, this creates an additional inflation driver.

The fat years are over – now modesty is required

The federal government has now switched on the turbo in diversification. Expensive gas is bought on the world market as a substitute for cheap Russian gas, which also has a huge impact on consumers. The state has a duty to act as a corrective in order to maintain the social balance in the country. Low earners and those in need must receive compensation payments.

Society should get used to the idea that the fat years are over. We will not be able to maintain the prosperity of the past few years. Modesty is required now. It’s about showing solidarity with the brutally attacked Ukraine. And to bear the consequences of Russia’s war of aggression having unhinged Europe’s post-war order.

Former Federal President Joachim Gauck put it this way: “We are not just the ones who can do the economic miracle. But we are also the ones who can grit our teeth once in a while if we can use it to help other people.”

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