Expert on inflation: That's how long we'll have to live with high food and energy prices
Created: 2022-12-27 04:48
By: Fabian Hartmann
Prices have risen, especially for food and energy.
© David Gannon/afp
Economist Stefan Kooths says the pressure on prices could ease somewhat next year.
In order to get inflation under control, politicians and the ECB must act now.
Berlin – Inflation is back.
Not just a little.
No, with full force.
The Germans had to get used to double-digit inflation rates this year.
Above all, the cost of energy has driven the price level.
This momentum could slow down somewhat in 2023, says Stefan Kooths, Vice President of the Kiel Institute for the World Economy (IfW), in an interview with the
Munich newspaper IPPEN.MEDIA
.
It is crucial for the further development of inflation that the central bank restores confidence in price stability.
Otherwise, says Kooths, something could slip - with serious consequences.
Mr. Kooths, prices in Germany have risen almost everywhere this year.
Did the impact of inflation surprise you?
Unfortunately I have to say yes.
The war in Ukraine has triggered additional dynamics in prices.
But there are inflationary effects that existed beforehand.
It would be wrong to attribute all of the inflation to the Ukraine war.
The prices for domestic factors of production – labor, for example – had already risen.
Are there also beneficiaries of inflation?
Inflation has two causes.
One is energy prices.
This primarily benefits the suppliers of energy, who are mostly based abroad and are currently doing good business.
Because money flows out for this, it reduces our purchasing power and makes us poorer as a society.
So no one benefits here.
And the second cause of rising prices?
Has its roots in the pandemic.
There were many state support programs that were also financed by the central banks.
In Germany alone, more than 200 billion euros ended up on the high edge in private households during the pandemic.
This "extra savings" could not be spent during the lockdown period - and this much money is now meeting a rather scarce supply of goods.
And from an economic point of view, prices go up when demand is greater than supply.
We are currently seeing that.
Stefan Kooths is Vice President of the IfW Kiel and Director of the Research Center for Business Cycles and Growth.
© kiel institutes
Inflation: why the state does not benefit from rising prices
Does the state benefit from inflation, for example through VAT?
The state benefits above all insofar as the old debts are devalued by inflation.
In the current budget, however, this is not a big effect.
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It is often said that when prices rise, sales tax also rises – the tax authorities then benefit from this.
That's not true at first.
For example, if people spend more on energy now, they can consume less elsewhere.
The government would only benefit from inflation if people did something they wouldn't otherwise do — draw on their savings.
It should also not be forgotten that the state will also face higher costs in the foreseeable future, especially for personnel.
So it is not the case that the state benefits per se from inflation in the current budget.
How long do you think the high inflation rate will be with us?
The impulses from the energy side will probably run out in the second half of next year.
The prices will then no longer rise, but will probably fall somewhat – albeit at a high level.
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Inflation:
Does that mean you expect relaxation?
For the further course of inflation, it is crucial whether confidence in price stability still exists or not.
If this confidence slips and economic actors no longer trust the central bank to achieve the price stability target of two percent, inflation will become entrenched.
The ECB has already raised interest rates.
Wasn't that appropriate?
The step came much too late, the central bank is panting behind the situation.
What she has done so far is not enough.
The ECB has also communicated itself that this is not the end of the road.
One thing is clear: the key interest rate must continue to rise.
But even if inflation falls, that doesn't mean prices will fall.
What would have to happen for that?
Whether the high price level will drop depends heavily on energy prices.
So far, the federal government has not revealed any new energy policy strategy.
Russian gas has ceased to serve as a bridge to the energy transition.
But it is completely unclear what is to take its place.
Nuclear power has just been buried, and we don't do our own fracking either.
We only know what we don't want and we're up in the air with it.
The country needs a long-term supply strategy in the energy sector, because the industrial heart of an economic area cannot be beat on the basis of subsidies.
In any case, mumbling about and shimmying from one relief package to the next is not a solution.
