Nearly 40 years have passed since the United States and most of Europe faced dangerous inflation rates, and over the past decade the biggest risk on both sides of the Atlantic has been lower prices, but since the outbreak of Covid-19, excessive spending by central banks and governments has led to expectations that change is taking place. By leaps and bounds.
The Financial Times said in its report that gold prices - which was the traditional hedge against the devaluation of the currency - reached an all-time high this month, noting that they did not exceed their peak in 1980.
The newspaper added that monetary collections - which were used by the Bank of England and the German central bank in the post-war period as a pioneer in pressure on prices but were largely ignored in recent decades - have returned to the scene again.
Public funds - which include not only cash and deposits, but also some liquid assets - have increased across advanced economies as officials inflate the state's balance sheet in response to the epidemic, and some economists believe that inflation is looming on the horizon, but this possibility is unthinkable.
The implications of inflation
The continuous increase in prices on a large scale has now become more of a threat than ever before, and inflation increases social disparities, as the vulnerable and poor are the most affected.
Inflation affects confidence and decision-making, and the investment climate as well. With the easing of closure measures, prices can jump, and companies may want to make the most of pent-up demand while easing the rules for social distancing, and shocks to supply chains may lead to Increasing costs.
If these pressures prove persistent and dangerous, wages must also rise. The driver behind the double-digit inflation in the 1970s was that expectations of higher prices were so entrenched that ever-increasing prices were met by ever higher calls for wage increases.
Meanwhile, the defining feature of the era of low inflation was the growth of low wages despite low unemployment rates, and this inflation was largely confined to asset prices, with the full impact of printing money from central banks on the cost of daily goods and services.
Huge debt deflation
With the collapse of the labor market, rising wages and prices seem unlikely in the extreme, and economists must also remember that money totals were abandoned for good reason, as setting policies on the basis of aggregates proved difficult, because they were not as reliable indicators of inflation as they were. Expected.
The newspaper pointed out that deflation is still the biggest threat at the present time, but the huge debt burdens involve risks of inflation, the most important of which is financial dominance, and the credit for controlling prices is often attributed to central banks, as they give the freedom to set policy as it deems appropriate, What is less recognized, however, is how harmonious this freedom was with the political climate prevailing at the time.
The newspaper pointed out that officials are also affected by political influence since they are appointed by legislators, and when the time comes for central banks to raise interest rates, this generation of policymakers will face pressure like their predecessors, and if they succumb to these pressures, inflation may eventually return.