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Nozzles at a gas station: High energy prices mainly responsible for inflation
Photo:
Sven Hoppe / dpa
Some things cannot be thought up.
The CDU advertised its then Chancellor candidate Angela Merkel in the 2005 election campaign with the Rolling Stones song "Angie" - obviously without any closer knowledge of the text, which contains such sad lines as these: "With no loving in our souls and no money in our coats / you can't say we're satisfied ".
No love, no money, no fulfillment - you can understand this as a self-deprecating twist, but you don't have to.
Now the OECD, the organization of market democracies, is also trying to get a song title: "Don't stop me now" is the title of a contribution to their latest economic outlook.
The classic by the band Queen says: "I'm a rocket ship on my way to Mars ..." However, that sums up the current economic policy debate pretty well.
Actually, the message from the OECD researchers is: Governments and central banks should let the upswing after the severe Covid 19 crisis run for now.
Under no circumstances should premature braking maneuvers jeopardize the recovery, which is only just beginning in parts of the global economy.
But at the same time there are increasing warnings of overheating - excessive economic dynamism which, to use the Queen metaphor, could ignite an inflationary rocket.
"An economy on crutches"
Larry Summers, Barack Obama's ex-economic advisor, recently criticized the US Federal Reserve with clear words for lulling the public into "dangerous serenity."
The Fed is in danger of losing control of inflation.
Figures published shortly thereafter seem to underline his thesis: In the US, the annual rate of consumer price increases has now skyrocketed to 4.2 percent.
Now the gaze is turning to Europe.
The
Council of the European Central Bank (ECB) will meet on
Thursday
to discuss the further course.
An immediate braking maneuver is not to be expected.
It will be all the more interesting to see what signals ECB boss Christine Lagarde sends in the subsequent press conference.
So far, she has repeatedly emphasized that price increases after surviving the corona crisis would be "temporary". In the not too distant future, the inflationary dynamic will weaken again on its own. Incidentally, the eurozone is still weak, "an economy on crutches" that first has to hobble over "the bridge of the pandemic". This state is far from being reached. In the meantime, the central bank must support the recovery with securities purchases, low interest rates and special loan programs.
But what does that mean in concrete terms?
How do we know that the end of the bridge has been reached?
What would have to happen for the Euro-Bank to start taking countermeasures?
Which indicators does it have in view?
To what extent is the ECB concerned about rising inflation expectations in the financial markets?
And how does she actually envisage an exit from the ultra-expansionary monetary policy - first cut down on bond purchases, then abolish the penalty interest on deposits at the central bank, then gradually raise short-term interest rates and later throw bonds on the market at some point?
Question after question.
The answers have what it takes to shake the stock markets.
Many companies are planning price increases
Admittedly, so far there is not much to be seen of drifting inflation in the eurozone. Consumer prices recently rose at a rate of two percent compared to the previous year. In Germany and eleven other of the 19 euro countries, the increase in May was two percent or more, according to Eurostat. Much of the plus is the result of higher energy prices, which were in the basement in the same period of 2020 due to the shutdowns. In this respect, the rise in consumer prices is actually a "temporary" phenomenon that has mainly statistical causes.
Consumers may not feel much of a general rise in prices just yet.
However, the situation is currently tense at the upstream production stages.
Companies have difficulty getting materials and intermediate products;
and they too are faced with rising energy costs.
The result: the producer prices that companies in Germany pay for their purchases are rising faster than they have been in ten years.
(Incidentally, at that time the ECB last raised key interest rates, but only marginally.)
Now more and more companies in Germany want to pass the higher purchase prices on to their customers, as a current survey by the Ifo Institute shows.
Two thirds of companies are currently planning price surcharges in wholesaling and one third in retailing - and the trend is rising.
Price dynamics seem to be moving towards consumers.
The rise in producer prices could also be "temporary".
As soon as capacities are ramped up again and the warehouses are full, the current tensions should recede and price dynamics should subside.
However, there are some new factors that could cause very unpleasant surprises.
Loads of wishes
True enough: For a long time now, inflation concerns have arisen without actually becoming a reality.
But past experiences are not always a good guide for the future.
We are dealing with some developments for which there are no immediate historical models.
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First, there are the gigantic surplus savings of the citizens.
In the affluent countries, private households have skyrocketed their savings in the Corona year 2020, because of the restrictions during the shutdowns and because of the increased uncertainty.
Now they are sitting on substantial cash cushions;
they still put a higher percentage of their income aside than they did before the pandemic.
So far, economic researchers have assumed that citizens will gradually reduce these reserves or use them to repay debts and that savings rates will also decrease very gradually.
But it can also turn out differently.
The OECD believes it is at least possible that citizens will fulfill a large number of pent-up consumption desires and quickly reduce their "excess" savings.
The result would be a gigantic surge in demand, which would further boost inflation.
Whether this will happen is the greatest unknown in the current economic scenario.
Great global thrust reversal
Secondly, the post-Corona upswing is meeting a changed economic structure. The demographic development is noticeably reducing the potential of the workforce, not only in Germany, but practically everywhere in the major national economies. The number of people of employable age is falling. Work is therefore likely to become more expensive in the future. Wage-price spirals, a phenomenon of the decades before globalization, would return, predict the economists Charles Goodhard and Manoj Pradhan in their book "The Great Demographic Reversal".
At the same time, the geopolitical conflict between China and the West is coming to a head.
Efforts are being made in the US and the EU to reduce dependence on global value chains.
The international division of labor is to be turned back a bit - experience has shown that this too has a price-driving effect.
The tightened climate policy does the rest.
Rising CO2 prices make energy consumption more expensive.
More than a third of the current rise in natural gas prices for industrial customers in Germany results from the higher CO2 tax, as the Federal Statistical Office calculates.
If CO2 prices continue to rise in the future, this will not be a one-off effect.
The planned EU climate tariffs are going in the same direction.
How all of this will work together is difficult to predict.
The current outlook is associated with fundamental uncertainty.
It is clear, however, that some of the price-dampening developments of the past - rising employment figures, intense international competition, cheap energy - are coming to an end.
For the central banks this means: Your job will be more demanding.
They have to demonstrate
in a
credible manner
that
they are countering price increases across the board - and
how
they intend to slow down the momentum if necessary.
Some price shifts, especially for products produced in a climate-damaging way, will be inevitable.
But the overall price level should remain under control, after all, that is the statutory mandate of the ECB.
Nobody expects Lagarde & Co. to raise interest rates next week.
The risks that still hang over the economy are too great for that.
But one would like to know what the ECB leadership intends to do if inflation rises faster than previously expected.
The ECB and the national central banks in the euro area are still working on a new strategy.
It should be ready in autumn.
The US Federal Reserve has had a new strategy for almost a year now, but it has not yet presented a plan to keep inflation rates around two percent - still the central banks' medium-term goal.
"Don't stop me now"?
Maybe.
But at some point a braking maneuver becomes inevitable.
The main economic events of the week ahead
Open assembly area
Magdeburg / Berlin -
Spätlese
- After the state elections in Saxony-Anhalt, state and federal politics assess the results.
San Francisco -
iSomething
- Start of the Apple developer conference WWDC.
Software news for i-users is part of digital folklore.
Expand Tuesday area
Berlin -
exit from climate change?
- 20th annual conference of the German Council for Sustainable Development (online) with prominent members: The US climate commissioner Kerry, Commission vice Timmermanns and Chancellor Merkel are there.
Berlin -
Wanted: 1.9 billion
- Meeting of the committee of inquiry into the Wirecard scandal.
Expand Wednesday area
Beijing -
Inflation in China
- China's statistical office presents figures on the development of consumer prices.
Wiesbaden -
German economy
- The Federal Statistical Office reports on German exports in April.
Luxembourg -
Corona aid in court
- The EUGH ruled on state aid to the German vacation airline Condor.
The plaintiff is Ryanair.
Expand Thursday area
Frankfurt -
"Temporary"
- Governing Council meeting.
Then President Lagarde explains to the press.
So far, she has always referred to rising inflation rates as a temporary phenomenon of the post-corona upswing.
Open area Friday
St. Ives -
Who rules the world?
- G7 summit in Cornwall (until Sunday) under the British Presidency.
There is a lot to talk about: Covid, climate, China - and much more.
Berlin -
Baerbock-Kür
- Federal Party Congress of the Greens, with decision on election program and top candidate.
