Fear of inflation at Friedrich Merz and Co. A relaxation guide for price neurotics

Enlarge image

Photo: Fabian Sommer / dpa

To anticipate one thing: Compared to a year ago, a lot is noticeably more expensive in Germany.

At that time the VAT had just been lowered;

Due to the economic shock of the pandemic, the prices for raw materials and thus gasoline had collapsed - and the fear ran so deep in the companies that many were happy to be able to implement something at all.

You never get the idea of ​​raising prices.

Wonderful for consumers.

Just not forever.

In the meantime, VAT has returned to its old level, raw material prices have shot up again (and still further), and one or the other company has also increased its prices since the biggest shock was over - and people really want to travel again.

As a result, the difference between the cost of living now and the special prices twelve months ago turns out to be rather unpleasant - and the highest previous year's inflation in three decades was reported for August at 3.9 percent.

For weeks now, Germany's legendary inflation neurotics have been leading to ever-bolder inflation-minded cinema.

Without all of this being so stringently comprehensible, to put it cautiously.

It is high time for a few technical and technical advice on the correct underpinning of the inflation panic - or stop the all-clear.

Avid slapstick experts

How fast it can go. Then comes the statistics record. Almost four percent. Then the head of the Bundesbank, who actually formulated with some caution that his experts had said that inflation "could" go "in the direction of five percent" by December. Armin Laschet's phantom economics expert Friedrich Merz is already lecturing that inflation will be four percent this year and five percent "next year". Yikes Who offers more? Global economist Gabor Steingart, always: He calculates roughly what such five percent devalue in a whole year of financial assets (without taking into account the increase in value, of course) - and what three percent mean over ten years. Poor wealthy people. You can then diagnose that the current situation is awakening "memories of hyperinflation" in the Weimar Republic,as a rather old German daily newspaper recently speculated. And then had an economist quote his grandpa a little bit -

what the hell

.

Germany.

It went down in the late summer of 2021. Old Swede, but that went really quickly.

Now the topic is too serious - and especially important for those who have to make hard calculations at the end of the month - to leave it to zealous slapstick interpreters.

Especially when they suggest that they are overwhelmed with the statistics.

It is somewhat of a real satire when a major German business newspaper is cocky and malicious that the economists had not predicted this inflation - only to get tangled up in the second sentence of the argument with level and percent.

No, it is not the price level per se that has reached a record level, but the arithmetical percentage rate of increase over the previous year.

Premium gasoline is cheaper today than it was ten years ago - with people's purchasing power increasing since then.

What the Bundesbank President said is not that inflation will average four or five percent in 2021.

According to the latest forecasts, it is more likely to be 2.7 percent - which in turn is less than in the much-praised old Bundesbank days.

Rather, it “could” happen in individual months towards the end of the year that the gap (to the exceptionally weak level in the second half of 2020) would go “in the direction of” five percent.

There was no mention of next year, dear Chief Economist Merz.

The head of the Bundesbank also predicts significantly lower rates - which is not so difficult, because the base effect of the reduced VAT will then no longer apply.

more on the subject

British historian on inflation: "The fear of inflation has shaped the German soul more than the Second World War" An interview by Michael Brächer

In order for Jens Weidmann's supposed single-month prophecy to come about at all, consumer prices would have to rise by 0.3 percent from month to month alone - which in turn would correspond to an annual rate of almost four percent.

The trend of the past few weeks speaks against it: It is more likely to decline, as Martin Sandbu of the Financial Times calculated this week.

For all hyperinflation commemorative fans: The disaster was almost exactly 100 years ago, and the price increase was at several percent every day at some point - 0.3 percent per month is not enough, this time we simply won't be able to do that with a high probability.

Now it would also make no sense to completely rule out that the time of the extremely low inflation rates of the past few years is over - or "could" be, to put it with the Bundesbank chief. A further surge in oil prices would be enough in the short term. However, it will be more important in the next few weeks to observe the month-to-month development on the commodity markets, for example, from which a large part of the inflation of the past few months has come from us - and not to talk about record rates of German inflation, which is more the low level a year ago has to do with current or future trends. Especially since even in the could scenario of the Bundesbank chief it is already foreseeable that the previous year's inflation rate will automatically turn out to be lower again.

What is certain is that the base effect of the lower VAT will disappear in January.

That alone will lower the calculated previous year's tax rate by around one percentage point.

It is quite likely that some of the effects related to the post-lockdown post-lockdown economy will also subside soon.

For example, some tourism companies have tried to make up for lost income.

In the USA there are already signs that inflation is easing again from month to month, according to »Financial Times« economist Sandbu.

In addition, productivity is picking up again everywhere - which creates new capacities and also curbs inflationary pressure.

The prices for industrial raw materials, which have risen sharply in the meantime, have also been falling again for months.

more on the subject

Products that get more expensive: When inflation accidentally turns into inflation of weaknessA column by Henrik Müller

The yo-yo experience of the past decades suggests that sooner or later a price crash will follow the latest run on the other highly speculative global commodity markets.

That too should be on the list of factors that speak against rather than in favor of sustained price pressure.

Already at the next oil price crash all those who rashly hold out the prospect of hyperinflation could look pretty stupid pretty quickly.

What economists have identified in the past as a result of comparable stare - for example after the Second World War, would also speak in favor of relaxation. Every time there were price spikes over a certain period of time because a lot of pent-up demand was met by (sometimes even very) limited supply. Each time, however, the shock was overcome relatively quickly.

All of this is worth a more sober look, because too much inflation panic actually does more harm than good. Simply because it is economically not bad when prices rise moderately - in good times that is a sign that the economy is running. Even more so when wages pull along again. Unlike what they did in the apparently great times of low inflation. Which also makes the concern about large wage-price spirals seem quite absurd. Before that gets out of hand, much more has to happen than a few months higher year-on-year price increases.