from Remix News:
“Do you remember how we said inflation will probably peak here a little earlier than in Western Europe?” asks economist Markéta Šichtařová
It may already have seemed that inflation in the West is slowly approaching its peak, but that is not the case. Considering the numbers coming from Germany, inflation cannot be even close to its peak.
Producer prices in Germany increased by a record 45.8 percent year-over-year in September, the same as in August. Energy prices, which rose by 132.2 percent year-over-year, had the most impact on this. The only positive thing about this is that the month-over-month growth slowed a little due to the drop in commodity prices. However, for consumers, it follows that consumer inflation, which lags behind the so-called production inflation, must still climb. We cannot lie about this.
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For Germans, however, the following sentence, which German statisticians added as a comment to the numbers, sounds the most frightening: “Compared to the same period last year, August and September recorded the highest increase in producer prices since the start of the survey in 1949.”
Germany is extremely sensitive to mentions of inflation or public debt. To understand why, we have to go back in history. The pre-war hyperinflation in Germany was caused by the fact that Germany could not finance the reparations from World War I. It began to pay its reparations with debt and started to monetize this debt, printing uncovered inflationary money and using it to pay off the debt. The result was hyperinflation and total economic disruption. Many historians believe it was this economic undergrowth that brought Hitler to power and marked World War II.
After the war, Germany, therefore, made a literal 180-degree turn. While before the war it showed enormous fiscal indiscipline, went into debt, printed money, and faced hyperinflation, after the war, on the contrary, it became Europe’s top-of-the-class in fiscal policy. It began scrupulously taking care to keep its public finances under control, not excessively inflating its debt, and not even remotely playing with anything resembling monetization. Jens Wiedmann, former governor of the German central bank, has been the most vocal central banker in Europe when it comes to criticizing the monetization of southern European debt and the policy of negative interest rates that the European Central Bank has begun to commit to in recent years. And it was the German Constitutional Court, through which some of the ECB’s plans of monetizing public debt did not pass.
So we have to understand that for Germany, the current inflation and debt monetization are much more sensitive topics than for any other European country. So far, consumer inflation in Germany is “only” 10 percent, a drop above the average inflation rate in the entire Eurozone, which reached 9.9 percent. Inflation, however, continues to rise.
Economics is not mathematics; economics is mainly about psychology. And here, we begin to encounter very sensitive limits of psychological tolerance. At this moment, inflation has several dimensions. In the first place, the Germans are becoming alarmed and irritated, although they are not yet venting such emtions via mass riots.
Secondly, it is politically very tricky to call a spade a spade. Given the German sensitivities on the mentioned topics, it is simply not politically appropriate to say that inflation is caused by the monetization of European sovereign debt. Rather, they talk about expensive energy, which in turn is linked to the war in Ukraine. They do not directly name the causes. But if we do not identify the causes, we cannot eliminate them, so we cannot solve the problem. The fact that the presidents and prime ministers of the countries of the European Union are trying to find the solution to expensive energy, and talk in particular about the regulation of gas prices, is a testament to this blind stumbling. This is what’s happening instead of admitting the simple facts that, on the one hand, there is more money than goods in circulation and, on the other hand, energy demand is greater than the supply after we voluntarily switched off energy as part of the Green Deal.
