Causes and consequences of the inflation that shakes the world economy

Heating bills are skyrocketing and fuel and food are increasingly weighing on the household budget. The return of inflation complicates the equation for the exit from the crisis.

They have been increasing for months. In the United States, consumer prices grew 5% year-on-year in October, the highest progress since 1990, according to the PCE index released Wednesday.

The euro zone also registered an increase of 4.1%, the highest in thirteen years, and in the United Kingdom inflation was 4.2%. Central banks recommend inflation of around 2%.

Inflation also wreaks havoc in other large economies: South Africa recorded 5% in October, Brazil 10.67% and Russia 8.1%.

The statistics are transferred to the day to day: the heating bill is through the roof, the price of gasoline has skyrocketed, the cost of meat or basic food is also growing.

In the United States, the agri-food sector has reduced the weight of items sold in the supermarket to camouflage the rise in prices. And some restaurants confessed to an AFP journalist having withdrawn from their menus products whose price has become prohibitive.

After a 2020 economic freeze due to covid-19, the rebound in household consumption and the reconstitution of company stocks exploded demand and supply could not keep up.

This inflated the prices of many raw materials such as oil, copper or wood.

The technology sector also suffered from a shortage of certain chips, essential in sectors such as telephony or the automobile.

Added to this is the congestion of world trade routes, with numerous ports blocked, without enough manpower to load and unload ships, which has also increased freight prices to record levels.

The months pass and the central banks insist on talking about conjunctural factors that will disappear when the effects of the automatic comparison with 2020 and the supply problems end.

“Now it is clear that this process is going to take longer than anticipated, and that the progression of inflation will probably worsen before improving,” warn Goldman Sachs analysts, who predict the beginning of a normalization in the middle of next year.

A sign that the problem has settled in the landscape, the word inflation has been among the most searched on Google in Europe and the United States for weeks, according to Google Trends.

One of the main fears is that the persistent inflation sentiment will translate into generalized demands for wage increases and that companies will affect their prices, unleashing a spiral that is difficult to control.

In the United States, “we can wait for companies to raise the salaries offered to the workforce they are looking for in the near future,” Jaboc Kirkegaard, a researcher at the Peterson Institute (PIIE) in Washington, told AFP.

The fragility of the labor market, linked to pensions and job vacancies, and the high profits of companies should, according to him, amplify this movement.

Traditionally, central banks can increase their interest rates to compensate for rising prices, but this can slow down economic growth.

One year after a historic global crisis, it is difficult for these institutions to take the risk of spoiling the fragile recovery that began this year and is already showing signs of weakening.

Several central banks in emerging countries have already taken this step and raised their interest rates under pressure from inflation, such as Mexico, Brazil and Russia.

Under pressure from a US president eager to preserve the purchasing power of households, the head of the Federal Reserve, Jerome Powell, indicated in his re-election speech on Monday that he will act so that inflation “does not take root.”

alb / soe / spi / dbh / zm

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