Published on Monday, July 4, 2022

Global | Inflation: "Delay breeds danger"

After a hiatus of several decades, inflation fills the headlines in the West. Not without reason: so far this year alone, the CPI has risen by 4% in the United States and by 5% in Europe. As a result, many are reminded of the 1970s in what is now called the Great Inflation.

Key points

  • Key points:
  • Today, as was the case then, the first signs of inflation were caused by exorbitant cost increases (as a consequence of external events such as OPEC coordination in the 1970s, the Yom Kippur war, and now Ukraine, epidemics, weather events and bottlenecks).
  • In both time periods, the authorities tried to mitigate the "transitory" damage with fiscal and monetary support. And both in the past and in the present, they also tried unsuccessfully to determine how much of the inflation came from the initial supply constraint, and how much from subsequent demand support.
  • Finally, during both periods, wage increases were closely monitored, in the knowledge that they could signal the formation of inflationary spirals. A "game" in which each economic agent tries to avoid higher costs by negotiating higher revenues, thus passing the hot potato back and forth to each other to a never-ending tune.
  • But there is a big and hopeful difference: monetary authorities are no longer the same as they were in the 1970s, and what does distinguish monetary policy today is a greater skill that rests on three solid pillars: better information, greater autonomy and a more nuanced understanding of the uncertainty they face.

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