Chronic. The big money-makers of the planet want to see, in the current inflationary pressures, a transitory phenomenon which, according to the projections of the International Monetary Fund (IMF), should peak at 3.6% within a few months in the advanced countries. They may be right, because this rebound in inflation is not due to a glut of money in the real economy. But then they would be wrong to believe it manageable by central banks if it persisted nonetheless, because there is no longer a pilot in this inflation train that is supposed not to be able to derail.
The communication, in any case, is well underway, to say the temporary nature of current inflationary pressures and manage to anchor inflation expectations at the level of the target (of 2%) of the major central banks. Banque de France economists recently echoed this, explaining that the high inflation of 2021 reflects “Normalization after the 2020 trough as well as the rise in the price of energy and manufactured goods” and, that in the longer term, “The economic recovery should allow a more lasting rise in inflation in the general level of prices and wages, however below 2%”.
This active communication from central banks is justified by the fact that inflation depends a lot on what everyone thinks it will be. Perhaps, however, this is the only instrument in their current toolbox that can still have any effect on inflation.
Supply is struggling to recover
Beyond the influence of their speeches, central banks will not have the capacity to manage, if it were to persist, inflation that does not come from a glut of money in the real economy. It is not, as Epinal’s image of the printing press would have it, the dumpsters of central money dumped on the banks and the markets that explain the current inflation. In any case, not as defined and measured by statistical institutes and central banks: a general increase in consumer prices, excluding the price of financial assets and taking only very little into account that of real estate . These dumpers have, in fact, redoubled the activity of the financial and real estate markets but did not fill the pockets of all households with banknotes.
Current inflation does not therefore draw its source from overheating demand that supply would fail to keep up. Above all, supply is struggling to recover to its pre-health crisis level due to supply problems and the increase in the price of raw materials and energy. This inflation could even continue to weaken aggregate demand by reducing the purchasing power of modest households for whom these price increases weigh on major expenditure items (transport, heating and lighting, food), not to mention the increase in prices. real estate which affects rents.
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