War-Related Inflation Finally Hits Europe Hard, so Try Importing More?

"The prices are ridiculous here. How are things on your side?" This is the common refrain coming from Mom's emails, as news headlines scream of further escalations around the Strait of Hormuz that have driven oil prices even higher. For months, I could shrug off her concerns. Looking at the inflation figures coming out of the US, the Europeans seemed to have been left unscathed by the war. It is a wonder how the prices have stayed relatively stable, and few complain about the cost of living locally, given how much more dependent on imported energy this Old Continent is.

In the past weeks, Europe, or at least Malta, has finally seemed to have caught up to the inflation story. Heading into the local supermarket, I have seen cucumber prices jump from less than two euros per kilogram to nearly four, and it has become hard to find fresh food of any kind that has not seen a nearly doubling of prices since I first moved to the islands years ago. Fortunately, the main staples of bread and cheese remain affordable enough for residents to get enough calories. But eating nutritiously is an entirely different matter.

It is one thing to see Americans pay 15 dollars for a fast-food meal and another for people in Malta. Sure, Maltese restaurants may largely cater to the wealthy ranks of foreign tourists rather than the locals more inclined to simple home-cooked meals, but even then, "15 dollars" means something entirely different in America, with a GDP per capita of more than 90,000 dollars, versus one-third of the figure in Europe's major economies. Adding salt to the wound, the American economy is growing nearly 3% a year, while the EU as a whole is lucky to stay flat. 

It is perhaps no wonder the hard-right is rising across Europe. Outright racism is taboo in liberal democracies, but the idea of accepting ever more new visitors and migrants is not. When prices rise while wages stay relatively stagnant, the natural conclusion for voters is that there is too much demand for the limited supply of resources, with too many people fighting over the shrinking pool of available jobs. Keeping people out may sound like protecting heritage or culture, but economic concerns may loom larger even if left unspoken.

That logic is entrenched by a feeling of helplessness about the trajectory. Europe had no part to play in the war in Ukraine that drove up prices of grains and fertilizers, and certainly none to play in the ongoing war in the Middle East. And the electorate watches European politicians being sidelined in finding solutions to end these wars while preserving the interests of European nations and peoples. As they see the cost of living balloon, they have little else to do beyond the only agency they know: vote for the most forceful-sounding politicians running in elections.

These voters will surely be disappointed. The hard-right, with little administrative experience, will not come up with magical solutions to rising prices in the supermarkets. Stopping the flow of foreign workers could only drive up prices further, with higher labor costs passed on to consumers in the form of higher bills for hospital visits, newly constructed real estate, or even fixing their cars. The wars in Ukraine and the Middle East may go on even longer as the hard-right panders to their Trumpian supporters across the Atlantic. Voters will only get angrier with the state of their personal finances. 

As right-wing governments waste valuable time that could be spent looking for real solutions, perhaps more people can consider supporting the idea of at least freer movement of goods. All the alarm about overcapacity in China heard on the news masks the real value of excess supply: prices go down. German carmakers are right to fret that Chinese competitors can build and sell better cars for cheaper, threatening their very existence. But purely from a consumer point of view, aren't cheap EVs that do not guzzle ever more expensive gasoline good?

And why limit the benefits to cars? Everyday consumables affect personal finances much more than capital goods replaced only once every few years. Chinese garlic already adorns the shelves of supermarkets in Malta. So what is stopping European retailers from working with Chinese producers to help them clear tough EU regulations on food safety and ship other fruits and vegetables across the world? Sure, refrigerated supply chains are expensive to maintain, especially given the rising oil prices, but higher prices incentivize innovation that can make perishables less so.