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Inflation: How to Curse the Curse

2022-07-01T11:28:30.857Z

The first estimates for June inflation harbor a tiny glimmer of hope. And they may show you the best way to fix the problem.



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Woman shopping: Slight relaxation in June

Photo: Rolf Poss / IMAGO

There has been no shortage of horror scenarios in recent weeks.

Inflation is here to stay.

It seemed clear that she would rather gain weight.

Gallop.

And anyway.

What the statisticians reported this week for the month of June that has just ended is all the more surprising: that the inflation rate in Germany has not risen further, but has actually fallen.

In fact, there could actually be a tiny glimmer of hope behind it and – even more importantly – the explanation for the slight decline could be an indication of what really helps against inflation.

According to initial estimates, said rate has clearly fallen from 7.9 to 7.6 percent.

Still huge.

And pessimists already doubt that the higher gas prices will soon have an impact on consumers - which should then push up the measured inflation again.

Nevertheless, there is something in the latest data that gives hope.

It can hardly be the fault of the central bankers

Since inflation here is usually measured and reported as a comparison of average prices today with those exactly a year ago, it is not surprising that it is still more than seven percent for the time being.

The big boost came at the beginning of the year and with the war - since then, month after month, the comparison with the previous year has logically been high.

It doesn't matter whether the price increases have continued from month to month since then - which in turn is important for the question of whether and to what extent the phenomenon will become independent.

It is precisely in this sense that the June data bodes well.

There was basically no increase compared to May.

If one deducts the usual price jumps for seasonal goods at this time – i.e. those that reverse again later in the year – consumer prices were even lower on average than in the previous month.

In other words: not only has inflation fallen compared to the previous year, but also the price level.

That doesn't make up for the previous price increases by far either, of course.

Shopping in the supermarket has become crazy expensive.

And there is no guarantee that this will continue.

Still, it's not what skeptics had predicted: that the loss of purchasing power will get worse month by month.

And it raises the question of what is behind it.

It can hardly be due to the hard-working central bankers.

In Germany, inflation should have picked up even more – when the responsible European Central Bank (ECB) has still not raised its interest rates, as critics lament.

Strange, but true: In Great Britain, where the central bank has been tightening credit conditions for months, inflation even rose to 9.1 percent in May – despite the oh-so-vaunted interest rate hikes by the Bank of England.

Of course, that's not proof.

According to all experience, what central banks do only has an effect with a delay.

The fact that inflation is rising in Britain (and falling here in June) only tends to confirm doubts about the effectiveness of interest rates in the current case.

more on the subject

  • Because of high inflation: Almost 40 percent of Germans want to save on groceries

  • High energy prices: Minister of Finance Lindner wants new relief next year at the earliest

  • Data from the Federal Statistical Office: Inflation rate surprisingly fell in June

Behind the preliminary German mini-relaxation there are likely to be completely different and notable reasons.

The official statisticians are still reluctant to make their first estimate, but they do indicate that if prices in Germany have fallen after seasonal adjustment, this could also have something to do with two phenomena of this early German summer - the nasty tank discount and the chaos 9 euro Ticket.

A bonus does not change the fact that the standard of living has become expensive

No matter how much the oil companies have now passed on or not, the prices are now lower than before.

If passed on in full, this would make the inflation rate even half a percentage point lower each month until August than it would otherwise have been, according to experts at the Kiel Institute for the World Economy.

Measured against the normal price level for driving in local transport, the nine-euro ticket is tantamount to a real increase in purchasing power.

Which it should be.

This should in turn lower overall inflation by 0.4 points for three months.

If true, both policies did what they were supposed to do - doing a better job of slowing inflation than some other means.

This, in turn, can be important because reports of declining (measured) inflation can also help moderate expectations of further inflationary spikes.

From July onwards, the abolition of the EEG surcharge will also have a dampening effect - by 0.3 points in the second half of the year, according to the Kiel researchers.

Once again: This is anything but the end of all inflation worries.

And the decline doesn't make up for the previous losses either.

It is just a signal of how things can be done - and that it is worth targeting and reversing the price surges, and not by means of widespread interest rate increases, which would also slow down those investments that are urgently needed.

Then what the chancellor just proposed for the upcoming meeting with employers and unions on Monday wouldn't be so clever: to have a one-time bonus paid to compensate for the loss of purchasing power.

Unlike the fuel discount and nine-euro ticket, that would not help to lower prices and, by definition, would not permanently compensate for the loss of purchasing power.

The bonus doesn't change the fact that the standard of living has become expensive.

The small hope value from June suggests that in emergencies it is worthwhile to target exactly where prices are rising - whether through the aforementioned discounts, subsidized tickets or other limited price increases, such as upper limits for speculatively high gas prices.

And to do everything else to eliminate the causes of rising prices - such as solving bottlenecks that are currently arising from the lack of skilled workers, whether at airports and through foreign aid or other things.

Or to put consumer-friendly pressure on companies that are obviously using the crisis to increase prices and profits.

Just as companies also come under public pressure if, say, they do not operate sustainably.

Then it can also help if the government meets with employers and trade unions for concerted action on Monday.

The more the government can then offer to curb inflation directly, as it did in June, the more employers and trade unions could be kindly asked not to start mutually pumping up prices, profits and wages.

One post among others.

Source: spiegel

All business articles on 2022-07-01

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