One of the greatest economists of all time, John Kenneth Galbraith, had said that inflation does not last forever. We are not in the post-Covid era yet since the 4th wave of the pandemic is here in my country Greece and other countries are already entering the 5th wave. What dominates the world news right now is the hot price increases, the general rise in food and fuel prices, the global inflation wave along with the disruptions of the global supply chain. Who is mostly affected by inflation? But of course the global middle class. Businesses around the world are facing delays to receive their stock orders in anticipation of Christmas, but their orders will eventually find buyers because there is excessive demand. Citizens are therefore the ones who are already paying the price. Why; It is simple. As GDP growth slows, consumer purchasing power shrinks and inflation negatively affects the real value of each household’s wallet. Let us not forget that with the advancement of vaccinations and the gradual opening up of the economies, a large proportion of the money moving into the real economy is actually allowances or subsidies in the context of governments’ fiscal support and European monetary policy support and recovery.
Inflation is growing at such a rate that central bankers in the US, Europe, Asia, will not be able to intervene with visible effect, even if they are forced by politicians. It seems that they can only wait for this wave to pass and the economies to return to normal levels of production, distribution, supply and demand. Other countries are already discussing about raising the -almost zero- interest rates while at the same time worrying that this will hurt the labor market, growth expectations and wage growth, leading to stag-inflation or recession-inflation and a general economic slowdown. Even if global demand reaches pre-Covid levels, driven by high prices as an opportunity for business profitability, supply chain disruptions will delay to be normalized until the end of 2022, according to various forecasts.
Flexibility is probably the right answer and the golden balance point that political leaders are looking for to manage inflationary pressures, in parallel with the obligation to draw up their own balance budgets for the next one or two years and their own political agendas of fiscal adjustment. In the wake of global inflation, Bitcoin cryptocurrency reached or exceeded $ 60,000, positively affecting several of the other alternative cryptocurrencies and attracting new micro-investors.
Economists and analysts around the world predict another year of inflation, barriers to production base and supply, along with easy ongoing monetary and fiscal policies, uncertainty and the risks posed by the continuing emergence of Covid19 mutations. It has been a long time in human history since all the economic variables together contributed to the perfect storm.
But to conclude with optimism, as Galbraith said, one day inflation ends, people and markets seek stability in times of inflation, and the economy responds to the end by leading to a mutually desired equilibrium.
Book Author – Economist – Business Consultant