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Mix of strong demand and limited supply igniting inflation

In several European countries, the pandemic and its lockdown brought some negativity into many household budgets. Many middle-class households have lost livelihoods and slipped into poverty.

Rolling lockdowns across the world disrupted the production of several necessary goods Europe hoped to receive from the Middle East. When lockdown came to an end in our regions, the demand for products was higher than stocks provision. The mix of strong demand and limited supply ignited inflation, which has spread well beyond the narrow set of goods that set it off.

The war in Ukraine and spreading lockdowns in China add to the turmoil. Both slow growth, while the war fuels food and energy inflation and the Chinese lockdowns drive goods price inflation. Of course, the war could spread further in catastrophic ways.

People become more nervous and see the cost of filling their shopping carts rise sharply, while with their wages they can do less and less and have less leftover at the end of the month.

Recent polls in Belgium, indicate that a large part of the population is not so confident that the war in Ukraine will soon be over. Strangely enough, 20% of the population do not see that if their wishes are fulfilled and Belgium would send troops to fight in Ukraine and ensure a no-fly zone, the war would actually come much closer to us because Russia will then see this as a declaration of war from our country against them, to which they would then react ‘appropriately’.

The extra military spending shall not help us much to bring our economy back on top. Gas, oil and coal shall become more expensive in the coming months and many countries face already a deficit in their budget because of the corona measures.

In the Unites States, the economy shrank by 1.4 percent on an annualised basis in the first quarter of 2022, the first such retreat since early in the pandemic. Economists said the slowdown was unlikely to build into a recession because economic fundamentals remained strong despite high inflation, the war in Ukraine, and ongoing pandemic worries. Rising wages in the States resulted in strong consumer spending, and companies were able to make big investments thanks to higher profits.

But here in Belgium the consumer does not see any positive prospects, his wages not going up and there not being much hope the Ukraine crisis will be over soon.

Back in the States the Nasdaq jumped 3.2 percent after the Federal Reserve said it would raise interest rates a half percentage point, as expected, to fight inflation, but wasn’t considering a bigger hike. Stock futures fell slightly early Friday ahead of a Labour Department report expected to show the economy added 400,000 jobs in April, down slightly from 431,000 in March.

Great Britain also sits in the shit. The Bank of England did not bother to sugar-coat the economic misery now facing Britain. Inflation above 10 per cent (1,5 higher than Belgium), a possible recession, and then years of near-zero growth were among the highlights of its chilling latest forecast. Even unemployment – previously one of the few reliable bright spots in the UK economic outlook – is set to rise. The Monetary Policy Committee (MPC) chose to increase interest rates to 1 per cent, still low by historical comparison. Indeed, some rate-setters wanted to be more aggressive, evidently fearful that inflation could run completely out of control.

Anyone who thinks the Briton can’t live without his fries and fish will have to check this out.

“There’s a stigma that comes with fish and chips, it’s been seen as a cheap meal,”

sighs John Molnar who is working 14-hour days at the Cod’s Scallops. Food shops have to face the higher prices of the necessary ingredients as well as their heating costs. The cheap meal soon will be gone. Experts say as many as one in three chippies could be out of business within the next six months if rising food costs do not level off soon. Those who have their shop in a tourist place can be luckier, but in the end, shall also have to close.

Industry leaders are racing to try to stave off collapses. In the U.K., Andrew Crook, of the National Federation of Fish Friers, is pressing ministers to offer support.

The recent increase in VAT, returning to pre–pandemic levels, has piled further misery on businesses and Crook argues Treasury officials are “just not engaging” to shift some of that burden.

While lowering VAT may be a lever ministers could pull, taxes are not the only thing weighing on the owners of chippies Almost everything they source has become more expensive as inflation wreaks havoc across the food sector – exacerbated by the war in Ukraine.

For the fishmongers as well as for fast-food outlets, another big problem will further cut into their bracket. Already many, like the biscuit and baking industry, are short of sunflower oil due to the blocking of exports from Ukraine. Costs have doubled and many shops and restaurant owners are instead turning to barrels of rapeseed or palm oil.

The situation in Ukraine is rippling into other parts of the industry’s supply chain. England, the Benelux, Germany may find a shortage of wheat.  As long as France has enough of its own products there will be a lesser problem. But the shortage of flour, a key ingredient for the batter, is to rise further, as countries that source grains and cereals from Ukraine are forced to turn elsewhere.

Potato growers, meanwhile, are facing spiralling production costs as the price of fuel and fertiliser soars. In Belgium there is also a shortage of water, which is going to cause more problems. Many farmers are simply planting less. Livestock farmers are very careful with the necessary feed. Peas, meanwhile, are costing more to produce, and there are fears a drier spring could have knock-on effects. Stephen Francis, the managing director of Fen Peas, says his

“costs have gone up exponentially”.

The cost of living crunch that is beginning to have a serious impact on household budgets, demands a better reaction from the politicians than we have seen so far. Here in Belgium the government still does not seem to understand how important it is to make it possible that people would have a bigger share of their wages for themselves. The simpler way of helping people financially is namely to let them keep more of their own money. Reducing tax cuts would get people already a lot further and by enabling them to have some more space in their budget, they will trust again the possibility to buy things. And by giving them the opportunity to spend more money the economy would turn again positively, taking care of more people needed to do the work, and having more income by the VAT from the sold products.

The governments should be well aware of the possible threat it could cause when people are feeling that they can not cope with their low income. In case the energy bills increase further and people will be confronted with higher prices for food in the supermarkets, then it could well be that this cost of living will be a serious threat to the wellbeing of voters and making them going to revolt against the system and against the politicians who left them down.

Cutting taxes for the working class and having higher taxation of societies and the wealthy could be the first step to avoiding upcoming chaos.

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Preceding

Grain shortages affect international markets

Published by Marcus Ampe

Retired dancer, choreographer, choreologist Founder of the Dance impresario office and archive: Danscontact-Dansarchief plus the Association for Bible scholars, the Lifestyle magazines "Stepping Toes" and "From Guestwriters" and creator of the site "Messiah for all". - Gepensioneerd danser, choreograaf, choreoloog. Stichter van Danscontact-Dansarchief plus van de Vereniging voor Bijbelvorsers, de Lifestyle magazines "Stepping Toes" en "From Guestwriters" en maker van de site "Messiah for all".

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