For example, food prices are rising because fertilizers are disproportionately expensive.
(Photo: dpa)
A combination of base effects, the gratifyingly rapid recovery from the corona shock and isolated delivery bottlenecks has led to an increase in inflation. These effects are likely to fizzle out as early as next year. Oil prices are unlikely to rise any further, China’s problems should lead to lower growth and relieve the commodity markets.
Nevertheless, the all-clear is not announced. On the contrary. Pessimists point to the strong growth in the money supply as a result of central bank interventions and emphasize the long-term relationship with inflation. Optimists point to the declining velocity of money for years and the deflationary pressure of globalization and technical progress. So far, the optimists have been right, but there are some indications for a trend change in important influencing factors.
Globalization has reached its peak for the time being. Not only since Corona have there been increasing efforts to re-regionalize value chains.
The demographic trend is turning. For decades we had a growing proportion of the workforce in the total population in the industrialized countries, Eastern Europe and above all China, but now the workforce is shrinking while the proportion of retirees is increasing. The era of cheap labor is coming to an end.
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“Greenflation” is expressly welcomed as “welcome and necessary” by economists such as DIW President Marcel Fratzscher. The increased energy costs are reflected in the entire economy. For example, food prices are rising because fertilizers are disproportionately expensive.
Daniel Stelter is the founder of the discussion forum beyond the obvious, which specializes in strategy and macroeconomics, and is a management consultant and author. His podcast goes online every Sunday at www.think-bto.com.
(Photo: Robert Recker / Berlin)
Not a problem for the central banks?
This change in the environment is impacting the monetary inflation potential created by the central banks. The optimists state that it is no problem for the central banks to fight inflation by tightening monetary policy.
With a view to worldwide record debts and very high valuations of stocks, real estate and other assets, the realists counter that the central banks will find it very difficult to raise interest rates because otherwise, in addition to payment difficulties for individual debtors, there is a threat of a collapse in the asset markets, which weakens the financial system.
If the central banks therefore keep interest rates low despite rising inflation, they are repeating the mistake of the US central bank from the 1970s, which then capped deposit rates below the inflation rate for too long. The result was an escape from money, which really drove inflation.
Inflation is a psycho-social phenomenon, which is why it is so difficult to make predictions. One thing is clear, however: the risk is real and politicians are increasing it. This is particularly dangerous for Germans, a people of savers with a preference for savings books, accounts and life insurance.
More: World Bank expects energy prices to be 80 percent higher in 2021.