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

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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.

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