Hans-Werner Sinn and Lars Feld: "Inflation is here - and will remain so"

It was the first time in a long time that economic policy was debated in front of an audience in the ballroom of Frankfurt's Goethe University: the former head of the Munich Ifo Institute, Hans-Werner Sinn, and the former chairman of the Economic Advisory Council and Freiburg Professor Lars Feld, recently personal economic adviser to Finance Minister Christian Lindner (FDP), discussed the sharp rise in inflation on Tuesday evening - and people's concerns about how it all might go on.

The Center for Financial Studies (CFS) and the Institute for Banking and Financial History in Frankfurt had invited.

Christian Siedenbiedel

Editor in Business.

• Follow I follow

"Inflation is there and will remain so," emphasized Sinn, who last year published a book "The wondrous increase in money - government debt, negative interest rates, inflation": "The ECB has to react, but is reluctant."

At 7.3 percent in March, inflation in Germany was even higher than the high levels seen after German unification, Sinn emphasized.

In the euro area as a whole it is already 7.5 percent, in the United States almost 8 percent.

Among the euro countries, Germany is only in the middle: the Spaniards have almost 10 percent inflation, the Dutch almost 12 percent.

All of this understates the situation, said Sinn.

You can see that in the producer prices.

It just takes time for that to reach the end consumer from the upstream stages.

The inflation of commercial producer prices in Germany is now at 25.9 percent - that is the highest value since the existence of the Federal Republic.

In France there are 22, in Austria 24, in Spain 36 and in Italy almost 42 percent.

For comparison: Even with the oil price shock in the 1970s, producer price inflation in Germany was only 14.6 percent.

situation of “stagflation”

It's all serious, said Sinn, and spoke of a "new stagflation": A situation in which there is high demand, but in which companies are unable to create the necessary supply.

The high energy prices are only an expression of part of these bottlenecks on the supply side.

Sinn also pointed to the increase in the money supply due to the Eurosystem's bond purchases and the resulting reduction in government debt: "All debt is inflationary - in a situation of stagflation," he said, and also included the planned additional spending on defense in Germany .

The economist recalled the extreme inflation of the 1920s as a danger, without wanting to forecast a similar development.

However, Sinn even quoted Stefan Zweig: "Nothing has made the German people more ready for Hitler than inflation." lost the price level.”

Much agreement from Lars Feld

Lars Feld signaled approval for many of the positions expressed by Sinn: "I share these statements almost completely." There are differences above all in the assessment of the role of the money supply and with regard to the gloomy prospects, for example with regard to budgetary policy.

The “far-sighted Hans-Werner Sinn” had already pointed out the dangers of inflation in his 2020 Christmas lecture, said Feld.

The rise in energy prices is actually an “expression of excess demand”.

The argument that the ECB cannot do anything about the high energy prices is wrong - the interest rate policy has an impact on the exchange rate, for example: "The devaluation of the euro creates additional inflationary pressure due to the high import prices."

Feld suggested: At its next meeting, the ECB could definitely announce interest rate hikes for the fall, such as setting the negative deposit rate for banks to zero.

The question came from the audience as to whether German ECB Director Isabel Schnabel should not actually resign if she misjudged the temporary nature of inflation, as Sinn had suggested.

But Feld didn't want to let his former colleague from the Council of Experts sit down.

He was appalled at the portrayal of the "Bild" newspaper, Schnabel and ECB President Christine Lagarde "made us poor and themselves rich." This is completely misleading.

Rather, he himself has the impression that Schnabel now supports those central bank governors on the Governing Council who are committed to tightening monetary policy: “Resigning would be counterproductive.”