Chronic. This inflation, which was not expected, hits the most modest hard and does not present the known characteristics of previous periods of inflation. Should we, under these conditions, prevent wages from following prices? Will the central banks, of which this is normally the hobbyhorse, be able to act better than the States? May public decision-makers around the world ask themselves these questions before providing a classic answer to a problem that is not!
Current inflation is not uniform in either its causes or its effects. Indian economist Jayati Ghosh insisted on the site Project Syndicate, on January 12, about the particularity of food price increases, where this inflation comes from in part. The rise in the price of cereals (mainly corn and wheat), vegetable oil and sugar has caused the index published by the Food and Agriculture Organization of the United Nations (FAO) to explode, which shows for 2021 an average increase of 28%.
Rising energy prices
The causes of their sharp increase are intertwined: both cyclical, with problems of supply and disorganization of value chains due to the health crisis, and more structural, with the rise in energy prices, in particular oil, and climate change that causes extreme weather events (drought, floods, fire, etc.), making crop production more erratic.
Speculation on commodity markets also likely contributed. Trading volumes on the commodity derivatives markets have never increased as much as they have over the past two years, with a number of 2.5 billion futures contracts (firm and options) per year, five times more than ten years old (“Volume and Open Interest Trends in the Global Futures and Options Markets: Half-Year Update”, Futures Industry Association, July 27, 2021).
The impact of this increase in food and energy prices is not uniform either, because it is on the poorest, in poor and rich countries alike, that it is strongest. .
If current inflation weighs so unequally on households, then it is appropriate to question the famous price-wage loop that a classic analysis of inflation recommends avoiding at the risk of seeing the spiral become out of control. control. Should we really, in the current context, prevent wage increases, especially where they are lowest, such as in the personal services sector where most jobs are also found?
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