Inflation doesn't stop. The consequences for consumers and businesses

by Gianni Malerba

As already said in the article "A vote for the climate in the 2022 political elections" there will be many questions that the new Government will have to answer, particularly in economic theme. It is therefore necessary to start again from one of the main themes on which the new (or new) Prime Minister will have to work in partnership with Brussels and the EU authorities: inflation.

What is inflation and what happens when inflation increases?

It is a typical phenomenon of market economies, that is, those economies in which the prices of goods and services are not fixed but vary. According to the definition of the European Central Bank, "it means that with one euro you can purchase fewer goods and services today than in the past. In other words, inflation reduces the value of the currency in the time”.

What happens, then, when inflation increases? The more inflation rises, the less purchasing power consumers will have and, consequently, manufacturing companies will suffer by further contracting the market.

Inflation in Italy today: the impact on consumers

The data emerging from the estimate OECD – published on September 26, the day after the vote – record a possible drop in Italian inflation next year (from 7.8% in 2022 to 4.7% in 2023) while in the Eurozone inflation should stand at 6.6% (down from 8.1% this year).

Those from the G20 are much more optimistic than those coming from the European Union and the European Central Bank whose President Christine Lagarde sees "dark economic prospects and a high inflation for a long period". 

The most recent Istat data prove to be in line with Lagarde's prediction: in fact the "shopping cart", made up of the goods most purchased by families (such as fruit and vegetables, pasta, hygiene and household products) shows, in August, an increase of 10.2% compared to the same month of the previous year. According to Coldiretti, however, the greatest increases are found in seed and sunflower oil (+63%, also due to the difficulties of importing from Ukraine), butter (+34%), eggs (+15%), flour (+23%), rice and pasta (+22%), fresh vegetables (12%). In particular, milk (the price of which has already increased by over 25% since last spring) could soon cost up to two euros per litre. The agri-food sector itself is also suffering, among other causes, the effects of the severe drought that characterized the summer of 2022, leading to an increase in the price of animal feed, mainly composed of cereals.

In this context, the products that are most easily reduced from the average consumer's weekly shopping list are fruit and vegetables, with consumption reduced to 11%, a figure that stands at the lowest values of the century.

There is no doubt now that this economic situation and the level of inflation recorded are directas a result of the energy crisis which is currently slowing down our economies. This crisis, caused by the conflict that is taking place on the outskirts of Europe, not only has consequences from an energy point of view - for the supply of gas from Russia - but also for the production of raw materials such as cereals of which Ukraine and Russia are major producers.

The gas crisis and the impact on businesses

The impact of inflation on the budgets of families and consumers, as mentioned, also and above all falls on businesses, the ones most affected by the collapse in purchasing power. The costs of gas supplies that companies have to bear are the natural consequence of the growth in European prices: the recent closure of the Nord Stream 1 pipeline (the largest natural gas pipeline reaching Europe) by Gazprom does not benefit countries dependent on Russian gas. Despite the search for new suppliers to make up for Russian gas, in fact, a problematic winter is expected for Italians and a further cost for companies, forced to increase their prices to limit the impact of primary costs.

The initiatives of numerous restaurateurs who have decided to display their bills in the premises to justify price increases and thus raise customer awareness are now famous; numerous other traders, however, have decided to close their businesses early or turn off their signs after a certain time. However, there is no shortage of those who have been forced to close permanently.

To provide some data on a different category of businesses, other than catering, according to Confartigianato Italian micro and small businesses have already spent 21.1 billion more than the previous year on electricity.

Inflation: what strategy to overcome the crisis

Making the words of Silva Pompili (Cna Industry) our own - who asks the new Parliament for urgent measures to combat the "devastating" impact that the crisis and inflation are having on the industrial sector - it is necessary that not only our legislator, but also the EU institutions move in this direction. The European Central Bank must also adapt to the new situation, without forgetting the recession estimated for Germany in the near future, which could drag the entire Eurozone with it. The ECB's plan to curb prices consists of proceeding to raise rates, a measure that according to Lagarde would lead to a reaction from the markets.

But beyond these temporarily functional measures, a medium-long term program of aid to families and businesses is necessary, in order to face not only the winter that awaits us, but also the subsequent temporal phases. The strategy, therefore, cannot only be short-term but can go further and plan our next few years.