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Inflation: Rising prices are back


The cost of living is rapidly becoming more expensive, and the purchasing power of employees is at risk. In the meantime, unrest is also spreading at the ECB.

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The good old shopping cart: Everything is getting more expensive - and people are talking about inflation again

Photo: Fabian Sommer / dpa

"Price stability is when people stop talking about inflation." On the other hand, we should worry if "the central banks stop talking about inflation."

This quote is only six months old.

It comes from Mervyn King, the British economist and former head of the English central bank.

The rise in consumer prices was not yet a big issue in spring 2021.

The central banks, especially the European Central Bank (ECB) and the US Federal Reserve, preferred to comment on more popular policy areas, such as climate protection or equal opportunities in society.

Inflation only kept nerdy economists busy (and a few chronically price-Spanish Germans).

With your thoughts you were still in the last lockdown and happy that life was finally back to normal and the economy was picking up speed.

The unions held back, especially in Germany.

In order not to endanger even more jobs, they agreed to moderate collective agreements.

As a result, salaries are now rising much more slowly than in previous years.

According to Bundesbank calculations, the wage increases in 2021 will be extremely modest;

in the course of the year they fell from two and a half percent in the first quarter to one and a half percent in the third.

Collective agreements in important sectors run well into the coming year.

The Advisory Council recently ruled that there won't be much going on in terms of wage increases before autumn 2022.

Such price increases have not occurred in 70 years

Persistent humility is a problem.

Because the situation on the price front has changed quite drastically: people are talking about inflation again.

An unmistakable sign that the certainty of lasting price stability - the normal state of the past decades - is dwindling.

In November consumer prices in Germany are likely to have risen by six percent compared to the previous year (current figures are available Monday and Tuesday).

Sure, the increase is overstated by the weak price development during the 2020 lockdowns and the temporary VAT cut.

But: there is still more pressure in the boiler.

The producer prices that companies pay for their purchases have recently increased by more than 18 percent compared to 2020 - the largest increase since 1951, as the Federal Statistical Office notes.

Raw materials and intermediate products are rare, and energy is expensive.

Now the companies are planning to pass their higher costs on to the customers: The current business climate survey by the Ifo Institute has shown that a "clear majority" of companies in industry and retail want to raise prices.

Never since the surveys began, the Munich economic researchers have identified such a large proportion of companies willing to increase prices.

Increasing distribution conflicts

Inflation is back, with a force that is causing the central banks to talk about it again - albeit in a soothing tone.

Jerome Powell, head of the US Federal Reserve, recently spoke of an "outbreak of inflation" that will soon be brought under control.

ECB President Christine Lagarde admitted to the EU Parliament's Monetary Committee that they were surprised by the price dynamics;

the expected slowdown in inflation rates will probably "take longer than originally expected."

This is a very uncomfortable situation for the employees.

The moderate deals that the unions have entered into in the face of the pandemic are now proving to be too low to maintain the purchasing power of wages.

Current and upcoming collective bargaining disputes are therefore likely to become more intense. The service union Verdi is already demanding an increase of five percent in the negotiations for state employees in the federal states - and explicitly refers to the increased inflation. This is likely to continue in the coming year in the wage rounds for the large industrial sectors.

If the employees stay still that long at all: If the price pressure does not subside in 2022, calls for wage add-ons could be loud, which carry the distribution struggle directly into the companies.

After all, the negotiating position of the employees has improved significantly: there is a shortage of workers and the number of vacancies is high.

Many companies are currently making excellent profits.

The profits are on record course - despite delivery bottlenecks and the fourth corona wave.

From the employee's point of view, the situation could hardly be more favorable in order to enforce one's own demands.

ECB tip embarrassed

Particularly spicy: Ironically, IPSO, the union of the ECB employees, is demanding a hefty salary increase. Recently, the ECB officials received an email in which the union predicted "significant losses in purchasing power". The ECB leadership is "unable (or unwilling?) To protect its own workforce from the effects of inflation." The salaries of central bank employees would only rise by 1.3 percent in 2022, while the cost of living at the ECB headquarters in Frankfurt rushed away.

In order to secure the employees financially, the IPSO representatives propose an inflation indexation, i.e. an automatic coupling of salaries to the - German - inflation rate.

If you also add a surcharge for productivity gains across the euro zone, as the central bank unions have in mind, wages could easily increase by five percent.

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ECB President Lagarde: Trouble in your own house

Photo: John Stillwell / dpa

The move embarrasses the ECB leaders around Christine Lagarde. On the one hand, the request of the workforce representatives shows that they mistrust the assurances of their boss, who never tires of emphasizing that inflation rates would fall back to below two percent in the »medium term«. On the other hand, a link between the central banker's salaries and the rate of price increases could become a model for other industries and thus drive inflationary momentum - namely if the companies in turn pass on rising wage costs to prices ("wage-price spiral").

So far, Lagarde has assumed that such a »risk of second-round effects remains limited«.

For this reason, too, it is confident about the further inflation outlook.

If, on the other hand, indexed collective agreements were to become the euro norm, it would be all the more difficult for the central bank to keep inflation under control in the future.

New era of distribution struggles

We are dealing with a historical trend reversal.

In the past few decades, the globalization of the economy and demographic development worked in the same direction: a large supply of goods and workers dampened the rise in prices and wages.

Workers and unions found it difficult to get decent wage increases through.

This is one of the reasons why it was relatively easy for the central banks to keep inflation under control during this phase.


Henrik Muller

Short-circuit policy: How permanent outrage destroys our democracy

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Now we are at the beginning of a new era: On the one hand, the globalization of the economy is gradually being reversed by new trade barriers. On the other hand, a “great demographic reversal” has begun, as the economists Charles Goodhart and Manoj Pradhan write in their book of the same name (“The Great Demographic Reversal”): The baby boom years are gradually retiring, the workforce is starting to shrink, not just in the West, even in countries like China. Both help the remaining employees to greater bargaining power, while at the same time the risk of inflation increases.

This scenario makes sliding into ever new inflation spirals and distribution struggles more likely.

In this respect, it is all the more important that the central banks do not let the price increase get out of hand.

Regaining lost trust is likely to be much more difficult in the future than in the past.

It will be a long time before people stop talking about inflation.

The most important dates of the upcoming week

Open assembly area

Wiesbaden -

That will be expensive

- The Federal Statistical Office announces an initial estimate for the inflation rate in November 2021.

Vienna -

Atomic Café

- restart of nuclear talks with Iran, which were broken off under Trump's US presidency.

Also included: Russia, China, Great Britain, France and Germany.

Expand Tuesday area

Nuremberg -

Fewer employees

- The Federal Employment Agency presents new figures.

As in other countries, many employees in Germany have left the labor market as a result of the pandemic.

They are now absent, and not just in nursing, and they improve the bargaining power of the working people.

Luxembourg -

Attention, Christine!

- The EU statistics agency Eurostat presents a first estimate for inflation in the euro area in November.

Beijing -


Sweet and sour

- The authorities present results of surveys among Chinese purchasing managers.

Expand Wednesday area

Stuttgart -

Nuclear fission

- Daimler is spinning off its commercial vehicle division into an independent subsidiary, Daimler Truck.

The IPO is planned for December 10th.

Expand Thursday area

Wiesbaden -

German strength

- New figures from the Federal Statistical Office on export.

Frankfurt -

German weakness

- The mechanical engineering association VDMA presents data on incoming orders in October.

Recently, the companies were able to look forward to full order books, but they did not get enough material to process the orders.

Luxembourg -


- The statistics agency Eurostat publishes key figures on unemployment.

Vienna -


driver - The oil cartel Opec + (plus Russia in particular) advises on the market outlook and possible increases in production.

Open area Friday

Washington -

Swept clean

- The US government publishes labor market



Why fewer people want to work than before the pandemic is an unanswered question.

Frankfurt -


- Deutsche Börse is reviewing the composition of Dax & Co.

Source: spiegel

All business articles on 2021-11-28

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