The hopes of many economists have been dashed.
At the turn of the year, they thought, inflation in Germany could calm down a bit.
The fall in the inflation rate has now turned out to be much smaller than many had expected: from December to January, the inflation rate only fell from 5.3 to 4.9 percent.
So it remains more or less at five percent.
This is also remarkable because at least the central banks and their associated economists like to argue that the high inflation rates of the past few months are closely related to special effects related to the pandemic.
From this, the supporters of this theory of “transitory”, i.e. merely temporary inflation, derive the conclusion that once the special effects caused by the pandemic subside, inflation will also disappear into thin air again – the European Central Bank does not have to do anything about it. Now, based on the so-called value-added tax effect, one could observe that the matter is unfortunately not that simple. This is about the following: In 2020, due to the pandemic, VAT was reduced from July to December. Therefore, for the inflation measurement last year from July to December, the prices from 2021 with higher taxes were compared with those from 2020 with lower taxes. This artificially inflated the inflation rate.
The supporters of the theory of temporary inflation now believed that if this effect disappeared at the turn of the year, it would be the beginning of the end of high inflation.
But that's not how it happened.
The tax effect has fallen out of the measurement, but not least the rising energy prices have compensated for this.
That could happen more often now: the part of the inflation that the pandemic caused is weakening – but other factors are driving inflation all the more strongly.
The ECB should not stand idly by.