Over the past few months, the term ‘inflation’ has come to be more closely associated with a nose-less, bald, unmanicured dark wizard of the Harry Potter saga, than with a criterion for healthy economies—a You-Know-Who or He-Who-Must-Not-Be-Named for economists worldwide. The term itself has garnered quite a following for those suspicious of governments being able to deal with the fallouts of high spending packages peddling interventionist labour policies. It leaves an “I told you so” aftertaste, and, quite frankly, seems to suck the life out of the party.
However, this week will be a banner moment for economic inflation worldwide, and we, unfortunately, must address it.
On Tuesday, the Office for National Statistics (ONS) will publish labour market data, which investors expect will delineate exactly how much pressure labour shortages are putting on the Bank of England. The UK central bank has taken a cautionary stance up until now, but continued labour shortages may fuel inflation if it results in companies raising wages and product prices. Its position has always been that unemployment has peaked already in the past 18 months. However, the effects of Brexit and ramp up in consumer demand will no doubt come to the forefront as the economy adjusts for the tapering of the furlough scheme.
The Bureau of Labour Statistics is expected to publish consumer price index data for the American economy on Tuesday as well. While rising inflation was seen as a natural result of the government’s trillion-dollar stimulus package and increased consumer demand post-lockdown, investors are eyeing the report in search of inflation in sectors less sensitive to pandemic-related disruptions. Energy, food and other volatile items have led to forecasts of a 5.3% inflationary increase in the CPI index, which, if true, will signal a 13-year high for the US economy. However, if other sectors report significant change in price, it is likely the Federal Reserve may have to change its monetary policy and increase interest rates.
The banner week for inflation ends on Friday, with Eurostat following suit and releasing key inflation figures. The consensus on the continent is that inflation will be slightly above the European Central Bank’s target of 2.0%, worrisome for the euro, which has fared well in recent months against a basket of its peers, but also for the outcome of the spending package the central bank approved earlier this year. Getting less bang for your buck is not exactly a position the eurozone can afford to be in.
While researching for today, I stumbled across a series of videos on social media asking the age-old question, “why can’t we just print more money?” The current state of Latin America—where economies such as Brazil, Venezuela and Mexico are leading the pack in inflationary alarm bells—is a cautionary tale against tipping one’s luck in the inflation game. It does not simply disappear if central banks don’t see it, hear it, or speak of it.