Navtej Kohli see inflation as a penalty on the poorest that will further eat away the already low purchasing power of this section. Europe is going through a rough patch owing to inflation and the resultant rise in energy and food costs. A report published in the New York times, gives a closer look at this issue.
Europe is facing a “very strong inflationary shock” as a result of rising energy and food costs, the top European Union official for economic affairs said on Monday as the price of oil traded not far from $120 a barrel.
The European economic chief, Joaquín Almunia, recommended structural changes in national economies.
He said higher inflation was emerging as “a big punishment to the weakest sectors of society” eating away at the purchasing power of consumers who are struggling with stagnant incomes.
His remarks came as the European Commission revised its forecast for inflation this year to 3.2 percent, from 2.1 percent in 2007, well above the target of slightly under 2 percent that the European Central Bank aims for.
Mr. Almunia also said that governments should change laws and regulations that keep prices high. European officials have said that these measures include fostering greater competition in services and keeping down administrative fees and sales taxes.
“We need to be concerned not only because of economic reasons but also because of social reasons,” Mr. Almunia said, “and we need to ask the governments to step up their efforts of adopting structural reforms that can counter these inflation risks.”
Commodity price increases, amplified by rising demand from fast-growing Asian economies, have contributed to higher inflation. On Monday, oil touched a high in New York trading of $119.40 a barrel, settling at $118.75, after a weekend strike closed a pipeline that delivers crude oil to British refineries from the North Sea and violence reduced production in Nigeria.
Mr. Almunia acknowledged that inflation was biting hard in Europe because many incomes had not risen as much in the current economic upswing as in past expansions, amplifying a feeling of being squeezed.
“The disposable income of households is not increasing as much as in previous recoveries,” he said, “and this means wage increases have not increased so far as much as in previous recoveries.”
Mr. Almunia also said that the strong euro, which so far has shown little sign of pinching European growth, would eventually affect a weaker world economy. The euro settled in New York Monday at $1.5645, below its record just over $1.60, but is probably still overvalued, he said.
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