Finder makes money from featured partners, but editorial opinions are our own.

EU inflation reaches record high: What impact does it have on Australia?

Posted:
News
gas prices -getty -1800x1000

Inflation reaches a record-high 10.7% off the back of rising food and energy prices. An expert predicts Australia's inflation rate won't spike that high.

Europe's cost of living is spiking.

A surge in energy prices and soaring food costs see European consumers pay more for pretty much everything.

Headline inflation came in at an annual rate of 10.7% in October. It's the highest since the 19-member bloc was formed.

Unfortunately, the spikes come with an energy crisis, which saw costs spike by 41.9% in October. Meanwhile, food, alcohol and tobacco prices are up to 13.1% from 11.8% in the previous month.

At the same time, growth is falling. European Central Bank (ECB) governing council member Olli Rehn warned of stagflation, a period of high inflation and no economic growth.

"There are first signs of stagflation to be seen," he said in an interview on Monday.

But what is bad news for Europe might help Australia.

Gas prices spikes take pressure off Canberra

A massive tailwind for Australia is rising gas prices.

Following the conflict in Ukraine, gas that usually comes from Russia has been cut off.

But Europe still needs to get its gas from somewhere.

So while spiking prices are a drain on Europe, it is helping Australia.

AMP's chief economist Dr Shane Oliver told Finder that these higher gas prices have a flow-on impact on Canberra's bottom line.

"It's a massive help for Australia. We are running a healthy trade surplus. Oil and gas have grown dramatically, at multiples to where they were a few years ago and so that has substantially benefited our terms of trade and national income," Dr Oliver said.

It could save us from recession

In more positive news for Australia, the mining boom could act as a strong tailwind for us as a global economy, even as much of the Western world is predicted to go into a recession.

"You don't want to be definitive, we could still fall into a recession if we raise interest rates too aggressively but there is a substantial buffer there," Dr Oliver said. "We've got key sectors shooting the lights out, particularly oil and gas."

The economist also said this is flowing onto our share markets and the price of our dollar, which has held up relative to falls in Europe.

But what is good for the economy isn't necessarily great for you

Avoiding a recession might be good news.

The bad news is a strong national economy won't protect Aussie consumers against rising gas and oil prices.

"By the same token, consumers have seen energy prices rise dramatically because coal and gas are priced internationally," Dr Oliver added. "So if a power station in Australia wants to use coal or gas, even though it's mined in Australia, they pay an international price."

The chief economist does note it's not as bad in Australia though.

And while energy and food prices are rising in Australia, Oliver points out that Australia is not facing the same pressures as Europe.

"We will see a further increase in the inflation rate up towards 8%," he warned.

"But Europe is being affected by things that are somewhat worse than in Australia. It is at the forefront of the energy crisis flowing from the Ukraine war," he concluded.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

Ask a Question

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms Of Service and Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site