Tribune. The fear of a return of inflation regularly takes on a moral and almost religious dimension in public debate. For its detractors, it would be a form of monetary depravity, depriving the virtuous ants of the fruit of their savings for the benefit of the improvident cicadas. For others, it would be the advanced signal of a flourishing economy and the abandonment of the ideological shackles that have held back the advanced countries for forty years. Determining whether inflation is a threat, however, requires moving away from these value judgments.
Current inflationary pressures are in part the result of widespread tension on the now famous “value chains”: bottlenecks have appeared here and there on supplies due to the post-Covid reopening of economies, the reallocation of jobs between companies and “catching up” after months of restrictions. But looking at supply without worrying about demand would be misleading. Inflation is also the result of the unprecedented direct fiscal and monetary stimulus which, since March 2020 in advanced countries, has preserved the purchasing power of citizens even as production contracted sharply there. This disconnection between production and consumption has played an essential role as a social shock absorber, sheltering the standard of living from the direct shock of the pandemic. But it also created an imbalance between supply and demand, which could hardly fail to weigh on the price level.
These inflationary pressures will last longer than initially expected by central banks. For the sake of credibility, it is unlikely that these same institutions will let slip a hyperinflation that some are already worried about. Nonetheless, their slowness in recognizing the current level of price increases indicates their reluctance to act preventively. Attentive to avoid an excessively rapid rise in interest rates which would destabilize the public debt markets, they would rather run the risk of falling behind inflation rather than being blamed for another recession.
Inflation can therefore be imagined for a few years to stabilize at a higher level than expected, with two main effects: the redistribution of existing resources and the modification of economic incentives.
Favorable to owners
Inflation is, in the first place, a form of redistribution. An old joke, taken up by Professor Dani Rodrik of Harvard University in his book Can we trust economists? (De Boeck, 2017), affirm that “The correct answer to any question in economics is: it depends”. The question is on everyone’s lips today, “Should we be afraid of inflation? “, is no exception.
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