Economists failed to predict global inflation. In most industrialized countries it has now reached eight percent on an annual basis and promises to be with us for the next few months, and perhaps even the next few years. To the extent that most Western societies chose, 40 years ago, to prioritize the fight against inflation over any other policy consideration, a large number of Western central banks now feel compelled to imitate the anti-inflationary monetary policy of the U.S. Federal Reserve. During the course of 2022 they have increased their benchmark interest rates to levels not seen for several decades. However, this decision is by no means a technical response to inflation. In fact, it exposes the world to a greater risk of a new financial collapse, similar to, or even worse than, that of 2007-2009, possibly accompanied by public debt crises similar to that of Greece in the following decade. How did we get to this point? Do alternative public policies exist?
Inflation? It’s all about energy and commodities
The West is currently suffering from a level of inflation not seen for 40 years. Because price increases are not uniform across sectors and categories of goods and services, some households – typically the most disadvantaged – are actually facing annual inflation of 10 percent. Western wages will most likely not follow this trend. This results is a significant loss of purchasing power for households, whose wages as a share of total GDP have already been falling over the last forty years. Although increasingly productive, Western households have become less and less wealthy. Now, many are more disadvantaged than ever.