Understand the causes and consequences of the inflation that shakes the economy on a global scale

Energy bills have soared, fuel and food are weighing more and more on the family budget: the return of inflation complicates the equation for getting out of the crisis.

What do the numbers say?

Inflation has been on the rise for several months. In the United States, the consumer price index rose 5% year-on-year in October, the biggest advance since 1990, according to the PCE index.

The euro zone also registers an increase of 4.1%, the most expressive in 13 years, and in the United Kingdom inflation was 4.2%. Central banks recommend inflation around 2%.

In other big economies, inflation also wreaks havoc: South Africa rose 5% in October, Brazil 10.67% and Russia 8.1%.

Statistics affect everyday life: the energy bill is rising, the price of gasoline has soared, as well as the cost of meat and staple foods.

In the United States, the agrifood sector reduced the weight of items sold in supermarkets to camouflage the rise in prices. And some restaurants have admitted that they have removed from their menus products whose prices have become prohibitive.

What motivates the discharge?

After a year of 2020 of economic stagnation due to Covid-19, the increase in household consumption and the resumption of stocks at companies caused an explosion in demand and supply failed to keep pace.

This raised the prices of many raw materials such as oil, copper and wood.

The technology sector also suffered from the shortage of some chips, essential in sectors such as telephony or automobiles.

In addition, a congestion of world trade routes, with several ports blocked, without enough manpower to load and unload the ships, has caused an increase to record levels in freight prices.

Is inflation transitory?

Months go by and central banks insist on talking about conjunctural factors that will disappear with the end of the effects of the automatic comparison with 2020 and the supply problems.

“It is now clear that this process will take longer than anticipated, and that rising inflation and inflation will likely get worse before it gets better,” warn analysts at Goldman Sachs, who project normalization to begin in mid-2022. .

A sign that the problem is present in the scenario: the word inflation has been one of the most searched words on Google for several weeks in Europe and the United States, according to Google Trends.

One of the main fears is that the persistent inflation sentiment will translate into widespread demands for wage increases and that companies will pass on to prices, which would trigger a spiral that is difficult to control.

In the United States, “we are seeing a potential demand-driven wage increase spiral, also driven by moves by many employers to bring the minimum wage to $15/hr,” said Jaboc Kirkegaard, researcher at the Peterson Institute (PIIE) in Washington .

The fragility of the labor market, linked to retirements and vacant jobs, and the high profits of companies should, according to him, expand the movement.

Why is it a minefield?

Traditionally, central banks can raise interest rates to offset rising prices, but this can slow down economic growth.

A year after a historic global crisis, it is difficult for these institutions to run the risk of undermining the fragile recovery started this year and which is already showing signs of weakening.

Several central banks in emerging countries have already taken the step and raised interest rates, pressured by inflation, such as Mexico, Brazil and Russia.

Under pressure from an American president who wants to preserve the purchasing power of families, Federal Reserve (Fed) Chairman Jerome Powell said in his re-election speech on Tuesday that he will work to keep inflation from taking root.