06 10 2021
In September 2021, inflation in the Eurozone reached its most extreme level in 13 years, namely 3.4%.
Higher inflation was last measured in September 2008 at 3.6%.
In Germany, consumer prices rose by 4.1% in September – the highest level in almost three decades.
Is inflation only temporary?
Some central bankers argue that these recent spikes in inflation are a short-term problem and that prices will stabilize in 2022.
“We have revised many of our forecasts over the last three quarters. Things have recovered faster, and that’s true for growth, that’s true for inflation, and that’s true for employment,” said European Central Bank President Christine Lagarde in an exclusive interview with CNBC.
However, she also did not rule out the possibility that rising prices could continue to lead to inflation in 2022.
“Energy will be one thing that will probably be with us for a longer time, because we are also moving from fossil fuels to other sources,” Lagarde said.
In general, however, the impression was that the European Central Bank expects inflation to fall in 2022.
In any case, the European Central Bank has not yet made any decisive changes to its monetary policy.
Some economists doubt that price pressures are a temporary issue and that only energy prices will continue to drive inflation in the future. They call for central banks to adjust their monetary policies.
Carmen Reinhart, one of the world’s most distinguished economists (Professor of the International Financial System at Harvard Kennedy School, Research Associate at the National Bureau of Economic Research and World Bank Chief Economist), said in an interview with NZZ on September 30:
“One of the hallmarks of the Corona crisis is the enormous uncertainty. For example, this uncertainty can be measured with a view to the enormous spread of the forecasts. The US Federal Reserve recently had to admit that it had underestimated the extent of inflation. I believe inflation will be more permanent than expected.”
Carmen Reinhart continued:
“The longer it lasts, the more it affects inflation expectations. And the more expectations are influenced, the longer it will take for inflation to fall again. I therefore warn against complacency: many people tend to view negative shocks as temporary and positive shocks as permanent. This is a mistake that is made all too often.”
Carsten Brzeski, Global Head of Macro at ING Germany, said last Thursday:
“The recent rise (in inflation) will do very little to bridge the gap between the two inflation camps. One argues that inflation drivers are temporary and that base effects will disappear or even reverse next year, and the other camp sees a broad risk of accelerating inflation.”
Outlook
Recently, car producer Daimler CEO Ola Källenius pointed out that the chip shortage could last until 2023. Too little will be produced, and transportation problems will continue.
This probably has to be agreed upon, and as long as the coronavirus pandemic has the world in its grip, in our opinion, these problems with production and transport will not go away.
The relatively low vaccination coverage in some countries will not bode well in the near future.
Considering further that more new variants are to be expected, requiring more vaccination of those already vaccinated, the corona crisis will realistically continue for some time, with the consequence that inflation will not fall decisively in a few months, as some had hoped.
