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Exclusive! Top economist Felbermayr: “Between four and five percent” - prices will continue to rise this year

2021-09-12T06:23:41.513Z


Consumers have to be prepared for further price increases in the current year. The President of the Institute for the World Economy, Gabriel Felbermayr, made this clear to Merkur.de.


Consumers have to be prepared for further price increases in the current year.

The President of the Institute for the World Economy, Gabriel Felbermayr, made this clear to Merkur.de.

Munich - The President of the Kiel Institute for the World Economy (IfW), Prof. Gabriel Felbermayr, expects higher prices in the medium term than before the outbreak of the corona pandemic.

"We believe that we will have to adjust to slightly higher inflation in the next few years than we were used to in previous years," Felbermayr told

Merkur.de

.

Recently, inflation had risen significantly in many countries around the world.

In August the inflation rate in Germany, for example, reached 3.9 percent, the highest level in almost 30 years.

In addition to rising energy prices, the withdrawal of the temporary VAT reduction also had an impact.

At the same time, Felbermayr called on the highly indebted EU countries to restructure their national budgets.

The European Central Bank (ECB) will “not be able to take into account the finances of individual countries indefinitely,” warned the departing IfW boss.

The economist from Steyr in Upper Austria will take over the management of the Austrian Institute for Economic Research in Vienna on October 1st.

Prof. Felbermayr, in August the inflation rate in the euro zone was three percent, in Germany it was as much as 3.9 percent.

The Bundesbank believes that an inflation rate of between four and five percent is possible until the end of the year.

Do you share this assessment?

Yes, we expect inflation rates of this magnitude in the coming months.

However, there are some special effects that are temporary.

We do not expect inflation at this level in the medium term. 

When could the situation finally relax again?

We do not expect inflation rates to continue at their current levels over the next year.

However, we also believe that, due to a number of structural factors, we will have to be prepared for slightly higher inflation in the next few years than we were used to in previous years.

The rise in the price of products from Asia contributes to this, as does the shortage of workers and higher collective bargaining agreements.

We are likely to have an inflation rate of around two percent, sometimes above.

But I don't expect hyper-inflation.

There is no need for scare tactics.

Now the central banks are flooding the markets with cheap money, many countries have also launched gigantic Corona aid packages, there are massive delivery bottlenecks in many areas and the economy is in full swing.

So the environment is pretty tense, isn't it?

Yes, that is why we are not seeing a return to the inflation rates from before the Corona crisis, which tended towards zero and in some cases into the negative.

There will be higher values, but no shooting through to the top, as some prophets of doom keep predicting.

IfW President Felbermayr sees the risk of "significant cost and price hikes"

In view of the better economic outlook, however, desires are now also growing among employees. The service union Verdi is aiming for an increase of five percent for the 1.1 million employees in the federal states, but at least 150 euros. IG Metall also wants a good lookup in the fall. How dangerous is that

The position of workers tends to become stronger because there is an increasing shortage of suitable workers.

It is therefore plausible that we will see higher wage agreements in the future.

This increases production costs for companies, which will ultimately be reflected in higher prices.

If there is also the increase in the minimum wage promised by some parties, which will also result in further increases in lower wage groups, then that can mean a significant rise in costs and prices.  

Against this background, some observers are now even drawing the specter of a wage-price spiral in which high prices lead to higher wages, triggering increasing household demand, which leads to further increases in prices.

Isn't that a bit of an exaggeration?

You have to at least keep an eye on that.

But there are still no signs of this.

As already said, there is no need to panic.

The European Central Bank is also quite powerful in counteracting the inflation trend.

In addition to short-term risks, structural inflation risks are also growing.

In the fight against climate change, many countries rely on a CO2 tax - also advocated by many economists.

At the same time, the baby boomers are retiring.

In addition, the falling supply of labor is likely to drive inflation in the medium term, warns the Bank for International Settlements.

How do you see such a scenario?

These are exactly some of the factors that speak in favor of a somewhat higher level of inflation in the longer term.

If some of the distortions caused by the Corona crisis recede, however, price-dampening factors such as international competition will work in a different direction again.

IfW President Felbermayr: Euro countries should make themselves weatherproof

In the fight against inflation, many observers are relying primarily on the central banks.

But does the ECB really have this leeway in view of the now horrendous indebtedness in important countries such as Italy?

The ECB will have to act very carefully, that is clear.

But it's not that she's completely powerless.

Those responsible for financial policy in all euro countries should in any case be prepared for the fact that interest rates will rise again in the longer term.

There are windows of a few years to prepare for.

But they also have to be used.

So when in doubt, the central bankers in Frankfurt are serious about it?

Yes, that's their job.

They have just given themselves a little more leeway by setting the inflation target at "around two percent" - so far it has been slightly below.

But the central bank's job is price stability, and it is independent of political guidelines.

It will not be able to give indefinite consideration to the finances of individual countries.

Financial policy should now be weatherproof, as one might say here by the sea. 

List of rubric lists: © Carsten Rehder

Source: merkur

All news articles on 2021-09-12

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