Europe’s inflation will increase as China’s reopening

Inflation in Europe will rise as a result of China’s plan to reopen its economy as both regions battle for more energy, the head of the European Central Bank predicted on Friday.

During this week’s World Economic Forum (WEF) in Davos, Switzerland, there was a lot of discussion on whether Beijing’s decision to end its zero-Covid policy will result in more or less inflation.

On the one hand, others contend that since supply lines are being restored, the reopening may lessen some of the rising inflation that Europe has seen lately.

Others, on the other hand, point out that China will use more energy, which would exacerbate already-existing inflationary pressures.

The head of the central bank for the eurozone, President Christine Lagarde, is one of the latter.

The reopening of China will primarily benefit China and the rest of the world, but many of us will experience inflationary pressure because China’s energy consumption last year was significantly lower than it will be this year, the amount of LNG they will be purchasing from the world as a whole will be higher than what we’ve seen, and there is not as much available domestically.

The International Energy Agency (IEA) has issued a warning that because there will be more competition for natural gas this year, European businesses may pay more when looking to buy it.

For the past year, inflation has been one of the major problems facing Europeans, primarily due to rising energy prices.

Throughout 2022, the ECB increased interest rates four times, bringing the deposit rate to 2%. In December, the central bank announced that to combat the sky-high inflation, rates would be raised further in 2023.

Even while headline inflation is still much above the ECB’s 2% objective, recent statistics indicate a deceleration.

According to preliminary data, the euro zone’s inflation rate for December came in at 9.2%. This was the second month in a row that price increases declined in the eurozone.