Inflation peaks in Europe.

It has been around seven months since the Russia-Ukraine war; inflation has risen wildly throughout Europe.

In the months following the invasion, stricter sanctions against Russian oil and gas remained a contentious subject for countries in the European region.
Russia has also increasingly decreased its oil exports to the European region and is planning to reduce them further if the U.S. and other nations put a price cap on its oil.

Energy related inflation:
- Energy-related inflation started to rise post-war and accelerated to over 40%.
- The impact of rising energy costs was felt across all European nations.
- In the U.K., energy inflation crossed the 70% mark; in Spain, it crossed the 60% mark, and in the Netherlands, it almost touched 100%.
Food inflation:
- The overall inflation and food related inflation have surged to 10 year highs in Europe.

Inflation is the general increase in the prices of goods and services in an economy.

Demand push factors:
- It is caused by high demand and low production or supply of multiple commodities, creating a demand-supply gap, which leads to a hike in prices due to increased consumption.
- For example, when the government lowers taxes, it also drives demand.
Cost Pull factors:
- It is caused by a shortage of factors of production like labour, land, capital, etc., and also due to artificial scarcity created due to hoarding.
- For example, if low-paid workers in a factory form a union and demand higher wages.

Creeping Inflation:
- When the rise in prices is very slow (less than 3% per annum), like that of a snail or creeper, it is called “creeping inflation.”
Walking inflation:
- When prices rise moderately, and the annual inflation rate is a single digit (3% – 10%), it is called “walking or trotting inflation.”
Running Inflation:
- When prices rise rapidly, like the running of a horse at a rate of speed of 10% – 20% per annum, it is called “running inflation.”
Galloping Inflation:
Inflation in the double or triple-digit range of 20, 100, or 200 per cent a year is called galloping inflation.

Increasing Profits for Producers:
- In most cases, inflation benefits the producers of goods. They make more money because they can sell their products at higher prices.
Shareholders’ income increases:
- If a company’s profits increase due to inflation, it can pay dividends to its shareholders.
- As a result, shareholders’ dividend income may increase during inflationary periods.
Borrowers’ Advantages:
- Inflation reduces the purchasing power of money. As a result, if the borrower pays an interest rate lower than the inflation rate, he benefits from the process.
- This is because the actual value of the money returned by the borrower is less than that of the money borrowed.
The government’s tax revenue improves:
- As goods and services rise, people should pay more indirect taxes.
- Tax revenue increases for the government, but the real value does not keep pace with the current inflation rate due to a lag in tax collection.

Real-Income falls for groups with fixed income:
- This means that people on fixed incomes, such as salaried workers, pensioners, and the like, will see a drop in real income.
- To put it another way, their purchasing power will be reduced.
Income distribution inequality is rising:
- Profits for business owners and entrepreneurs rise due to inflation.
- People in fixed-income groups, however, see a decrease in their real income.
- As a result, income inequality is more pronounced during this time period.
The value of the currency may depreciate:
- Due to less purchasing power parity, the demand for the dollar increases, depreciating other currencies..
- This benefits the exporters and will burden the importers.
Lenders Will Sustain Losses:
- As mentioned before, borrowers benefit from inflation when it positively impacts them.
- As a result, lenders risk losing money during such times.
- This is because they receive a sum with less purchasing power than the amount loaned.

Content Source: The Hindu