An analysis recently prepared by the British newspaper “Financial Times”, based on figures and forecasts published by Consensus Economics (a global macroeconomic research company), reveals that:
Even by the end of next year, real incomes will not have recovered to the levels reached before price growth resumed. The analysis indicated that between 2020 and 2022, real incomes fell by 6.5% in the euro zone. This was supported by sharp increases in energy and food costs. It is estimated that by the end of next year 2024, the ratio will be 6% below 2020 levels, according to the analysis.
While analysts point out that “the phase of falling price growth will leave a permanent burden on household financial resources”.
The British newspaper quoted Victoria Scholar, chief investment officer at Interactive Investor (an online investment service), as saying: “Although inflation rates appear to be falling, prices are not coming down (..) the pressure on household budgets and the costs of living pressures may continue. Like a strong headwind.
Consumer prices (which exclude food and energy prices) slowed to 5.6% in April from 5.7% in March for the first time in ten months. Headline inflation rose to 7%, slightly higher than March’s rate of 6.9%.
Inflation has slowed sharply from the double digits at the end of last year, but remains well above the ECB’s 2% target.
This relative slowdown “would put pressure on policymakers at the European Central Bank, who have continued to raise interest rates aggressively over the past year to combat price pressures, and should therefore slow the pace of monetary tightening at the next meeting”. according to the analysis of the British newspaper.
The bank previously raised interest rates by a total of 3.5% since July last year to control rising food and energy prices, which rose dramatically after the outbreak of the Ukraine crisis. at the beginning of 2022.
Lower wages and higher cost of living
For his part, Professor Emeritus of the Department of Economics at the University of Ottawa, Mario Cicarichia, says in exclusive statements to the site “Sky News Arabia Economy”: As is the case in most countries of the world , since 2021 Europe has witnessed a very significant decline in real wages, i.e. wages after increases in the cost of living (measured by consumer price inflation).
He adds: “Prices have risen in Europe faster than in North America, despite high unemployment rates there (..) In the United States and Canada, we have seen relatively stronger growth and to lower unemployment rates, despite attempts by central banks to raise interest rates.” to slow the rate of inflation.
The UK newspaper’s analysis says that “poorer people, who spend more of their income on basic necessities, are more exposed to higher prices and will continue to feel greater pressures as costs food continues to rise even with lower energy prices.”
The cost of food in the European Union rose 19.5% year-on-year to March. This is the highest rate since Eurostat started collecting such data in 1997. In some member countries – including Poland, Portugal and the Baltic States – costs have risen further. Prices of some commodities such as cooking oil and eggs rose more than 30% within the bloc through March.
According to the professor emeritus of the Department of Economics at the University of Ottawa, “This context would create more problems for Europe, such as with the slow growth of real wages as well as anemic investment rates, the only source of private sector growth that Europe can rely on. is net income. “exports”.
And he added: “Historically, European countries tend to be largely export-oriented countries, however, the global economy is not growing as much and, more importantly, the euro rose last year by against the US dollar, and all of that would be more unemployment and weak growth issues on the horizon for Europe in the period ahead.”
According to Consensus Economics, “the rate of core price growth in the eurozone and the UK is not expected to return to the 2% level” targeted by the European Central Bank and the Bank of England until next year.
The International Monetary Fund had indicated in earlier forecasts last week that inflation in the region would not approach the target until 2025.
Wages and prices in Great Britain
In Britain, the FCA estimates that the period from spring 2022 to spring 2024 will mark the biggest fall in real disposable income since records began in the 1950s.
Professor of Economics and Business at the University of Portsmouth, Dr Ahmed Abboud, said in exclusive statements to “Economy Sky News Arabia”: Europe in general, and Britain in particular, have recently gone through crises that have great economic consequences (starting with the Corona pandemic and ending with the war in Ukraine). Which has directly affected the economy and the citizens, and which is experiencing the increase in the basics of life, especially with the rise in energy prices, and then the cost of obtaining gas for the citizens and the le cost of heating homes, in addition to rising interest rates and its impact on mortgages, and the cost of rents.
The official energy cost cap for UK households is set to fall to £2,200 by the end of 2023 from over £3,280, reflecting a fall in wholesale gas prices in Europe from their peak of August. But that level will still be double the 2020 figure.
Abboud points out that “high rates of inflation have affected the incomes of citizens in Europe and led to an increase in basic expenses and the cost of living such as food, drink, heating and other essentials, which in turn affects the ability of citizens to turn to luxury and entertainment, such as the tendency to book various vacations and so on (trips)”.
And the professor of economics and business at the University of Portsmouth added: “But because European countries have a strong economy and a strong economic potential, this has largely led to countries being able to contribute to dealing with the cost of living crisis, at least in terms of helping low-income people in times of high prices.”
He concludes his interview with the ‘Sky News Arabia Economy’ site by saying: “It is undeniable that the standard of living in Europe and in Britain in particular has declined, and there is an almost clear effect on the ability of citizens Europeans to go for leisure and luxury goods in the recent period significantly compared to previous periods.” .
“Prices in Britain will remain high and wages must regain their lost value after the longest wage pressure in 200 years,” according to the British Trades Union Congress. “The steady increase in food prices month after month is having a devastating impact on people’s ability to feed themselves and their families.
local solutions
Citing the local solutions adopted by a number of European governments in order to mitigate the impact of pressure on prices, among these solutions is the conclusion by the French government of an agreement with a number of shops specializing in the products base to offer reduced prices. While Croatia fixed the price of eight basic foodstuffs (including milk and chicken), at a time when Portugal, Spain and Poland tended to lower taxes on foodstuffs.
However, “this has not stopped the increase in the number of people turning to charities”, which was confirmed by a member of the board of directors of the German Association of Food Banks in Hesse, Katja Bernhard, quoted by the Times Financial Report, as saying: “The influx of applicants in recent weeks has been so high that half of our 58 institutions have had to stop accepting more people.”
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