The Current State of Inflation: Why Governments Can No Longer Blame Supply Chain Disruptions
As we move further into 2023, it is becoming increasingly clear that inflation remains a major concern across the globe. Despite declines in the prices of commodities and freight, inflation readings continue to show extremely elevated levels and rising core inflationary pressures.
Governments can no longer blame inflation on Putin’s war or the so-called “supply chain disruptions.” The reality is that printing money above demand is the only thing that makes prices rise in unison. Inflation is accumulated, and the narrative that bringing down inflation from 8% to 5% in 2024 will be a success is misleading.
The monetary aspect of inflation has been proven on the way up and in the commodity correction. Rate hikes are not enough to address the issue, and broad-based money growth needs to come down rapidly. So far, in the United States, broad money growth is flat and has declined to more reasonable levels in December 2022. However, the latest ECB reading of broad money growth in the euro area points to a 4.1% increase, which is very high compared to modest gross domestic product (GDP) growth and certainly very high compared with the estimates for 2023.
Citizens are feeling the effects of inflation in the form of weakening real wage growth added to much higher costs of living as the prices of non-replaceable goods and services—education, healthcare, rents, and essential purchases—are rising much faster than the headline CPI suggests. We are all poorer, and the headline is slightly lower. CPI does not mean lower prices, just a slower pace of destruction of the purchasing power of currencies.
In short, someone will invent another excuse to blame inflation on anything except the only thing that causes prices to rise at the same time: printing currency well above demand. It’s time for governments to take responsibility for the issue and implement measures to address it.