The inflation rate is high, but the price spiral can still be stopped.
(Photo: (c) KAI PFAFFENBACH/Reuters/Corbis)
German inflation in April was 7.4 percent: This is about the level of the previous month and also roughly in line with expectations. The trend that everything is getting worse and that even fears are being exceeded has lost strength.
That’s good news: inflation can’t just go away, but unless momentum picks up further, it’s a small step towards improvement.
The important thing now is that everyone involved does everything right. Above all, of course, the European Central Bank (ECB). In the meantime, it has signaled relatively clearly that it will stop buying bonds in the summer and will soon also raise interest rates.
It should not be swayed on this course and clearly communicate that this is only the beginning of the tightening of monetary policy.
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The government should hold off on tax breaks and subsidies, and only tailor them to those who really need them. Because if the financial policy is generous, it strengthens demand and also drives up prices – the effect is often overlooked. It is also important to clearly limit measures in terms of time.
Labor market is not overheated yet
Tariff policy also plays a role, of course. Unlike in the USA, the labor market in the euro area has not yet overheated and wage increases are usually well below the rate of inflation. But unemployment is already very low, and here and there, for example at IG Metall, there are loud demands for high wages.
In this area, too, it would dampen inflation if the really needy were supported and surcharges were limited in time in order to limit the risk of a wage-price spiral.
Unless too many mistakes are made and war or Covid escalates dramatically, there is a chance that inflation will gradually come under control.
This is also helped by the fact that the previous price increases are dampening demand – if they are not artificially compensated.
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