Inflation will be a tragedy, because it will lead to wrong, pro-cyclical and misery-creating actions
Inflation warning !! Inflation alarm. Today, the cries of pain in the financial newspapers retrace Europe. Indeed, we are at a level of inflation in the euro area that had not been seen before in the short history of the single currency.
The annual inflation rate in the euro area rose to a new all-time high of 5.1% in January 2022 from 5% in December , while markets were expecting a slowdown to 4.4%. Energy continues to record the largest increase in prices (28.6% versus 25.9% in December), followed by food, alcohol and tobacco (3.6% versus 3.2%), services (2.4% , the same as in December) and non-energy industrial goods (2.3% vs 2.9%), showed preliminary estimates. Core inflation, however, which excludes energy, food, alcohol and tobacco prices, fell to a three-month low of 2.3%, as we can see below.
Core inflation is at 2.3% and we see how the overall inflation rises, and the core inflation instead falls after the December peak of 2.5%. The reason is simple: the weight of the energy component, exogenous and linked to the crisis of natural gas supplies from Russia, made itself felt even more strongly than in December. The factor is stagflationary and external and we see it in action with the compression of Core inflation, an indication of an economy that suffers and salaries that do not grow. Not to mention that the cost of the famous “Carbon Permits”, the emission permits necessary for industrial activities that emit CO2 or for the generation of electricity, are at an all-time high, putting salt on the energy wound.
The situation is serious, but it can get worse, precisely due to the frenzy that these inflationary data cause in the Nordic countries, Germany in the lead, and the pressures that the real ECB to receive to change its monetary policy and start a squeeze on interest and on buying. of bonds, sending up rates and depressing the values of government bonds.
Handelsblatt, the German business newspaper, has been beating up on this point for some time, highlighting that inflation is three points higher than what the ECB wanted. Of course, the fact that this happens precisely because of the wrong energy policies desired by Germany takes a back seat. The German pressures, not very lucid, will be able to a monetary measure, the increase in rates, pro cyclical, when instead it would be necessary to intervene on the supply side, increase the energy one and reduce costs. Unfortunately, Political Economy is becoming only political, indeed repressive prejudice, leaving the economy part at home. It will be paid by European citizens, Italians in the first place, increasingly poor, increasingly angry.
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The article Inflation will be a drama, because it will lead to wrong, pro-cyclical and misery-creating actions comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/linflazione-sara-un-dramma-perche-portera-alle-azioni-sbagliate-pro-cicliche-e-creatrici-di-miseria/ on Thu, 03 Feb 2022 10:30:57 +0000.