Is inflation coming back soon?

D.But inflation is coming again soon – that is a forecast that many people have misled. The world is waiting for the great inflation as it was for the Berlin airport. Thilo Sarrazin took on one of the biggest betting stakes: “If we don’t get any high inflation within the next ten years, I’ll give back my diploma as a Bonn economist and I’m ready to learn everything again,” he said at the end of 2012. He has two years still. And in the corona pandemic, nobody really believes that this will save them.

But what happens after that doesn’t seem so clear anymore. In these weeks, the world of central banks is talking about a book that prophesies a new inflation. Not for this year, not for next – but it could go up again sometime soon. It was written by the economist Charles Goodhart, 84 years old, who is considered one of the most original economists in the world. The so-called “Goodhart’s Law” is named after him: It says that a measure becomes unusable as soon as it becomes a political goal.

The book is on the central bank governor’s desk

In August, Goodhart, together with the British economist Manoj Pradhan, published a rather scientific and technical book on demography, which has meanwhile been on the desk of many central bank governors. Not everyone likes to speak publicly about the reading, not everyone agrees with the conclusions, but practically everyone takes the book seriously.

“Goodhart puts his finger in the wound. The aging of the West and the economic consequences is probably the only cross-generational topic that is currently being discussed very slowly, “says Robert Holzmann, Governor of the Oesterreichische Nationalbank. The German economy, Volker Wieland, praises: “I find the theses and above all empirical analyzes very interesting and worth considering.”

At the Bank for International Settlements, the bank of the central banks, chief economist Hyun Song Shin says: “It’s a provocative book. Not everyone will agree, but it’s definitely worth reading. ”Three years ago Goodhart had already presented the main features of the thesis there (at that time the F.A.Z. business blog“ Conclusion ”reported on the lecture).

Why has inflation been low for so long?

But from the beginning. Inflation has been low for at least 20 years – despite speculative bubbles and their bursting, despite financial crises and unprecedented money creation by the central banks: the prices of goods and services barely rose. Some feel that inflation is not measured properly. However, this cannot make out more than a few places after the decimal point.

Some also say that instead of the price of goods, the prices of assets – real estate, stocks and the like – rose. But one thing remains unavoidable: the inflation of goods prices remains low. For years, the central banks have feared deflation, i.e. falling prices. They keep thinking up new measures to avoid deflation. They are buying more and more bonds. The prices are still not rising faster.


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