«A trumpet blast is heard on the right, a blast answers on the left». Not even the Count of Carmagnola would have heard such a din on the battlefield of Maclodio, if the trumpets had been commodity prices of today, and the rings their increments. Petrolium? +88% in one year. Copper? +74%. Corn? +83%. Cotton? +53%.
The list of price increases could go on, but the music wouldn't change much. And it would not be that of a well-tempered harpsichord, which Bach would have liked. But rather a din such as to awaken the dead. Even inflation, which was now declared dead twenty-five years ago?
For some economists and large investors, this crash heralds his awakening from the afterlife. Among the first there is also Roger Bootle, who won undying fame precisely for having written so clearly that inflation was dead and buried. “How much it will increase and how long it will last can be debated. But the danger of deflation it has passed and we are facing a total change of scenery,” he said in a recent interview.
Indeed, even the seismograph of the producer prices recorded strong shocks: +9,0% annually in China, +7,6% in the Eurozone, +6,2% in the USA. And if we move on to the main index for measuring monetary stability, that of consumer prices, the picture changes in the levels, but not in the accelerating trends: +5,0% in the United States, +2,0% in the Euro area (but with countries that are at 3%, and in the EU even more than 5%), and +1,3% in China, but the Chinese one is a special case (the usual pork…).
So what are we waiting for to sound the alarm? What are they waiting for the central banks, famous for reacting very early to the first frond stormirs, why does their action reverberate in economic behavior with long and variable delays? Are they crazy to keep pumping all this money into the system? But what happens, really? "Great is there confusion under the sky», claimed another great leader, Mao Zedong, concluding «therefore the situation is excellent!».
There are various explanations for what is happening: bottlenecks in production of individual commodities or vital components (such as microchips); spasmodic requests in sectors that have remained immobile due to social restrictions (the wedding industry is called upon to do in twelve months what it would do in 24…); companies that fear to run out of supplies and make stocks, having zeroed them a year ago; transport obstacles… But when the effect is common, the cause must be too.
The cause is that you can't go from zero to 100 in such a short time without having repercussions. Translated: twelve months ago, or something more, we wondered about what upheavals and how long they would have produced the pandemic and the health interventions to stop it on supply and demand. Then there was the prompt and unanimous response, in actors and countries, of economic policies, and the fine-tuning, in record time, of effective vaccines and the logistical effort, worthy of a military mobilization from the Great War, to administer it. And also the "tiredness from closures” in citizens, which leads governments to be more attentive and ready towards reopening. So now we are faced with one world growth which hasn't been seen for decades. And you can't expect everything to run smoothly like a sea of oil.
Above all, we need to look at what is happening in the job market and at the price of the prime mover of any inflationary process worthy of the name: the cost of labour. This cost increases yes, but substantially in line with productivity. And therefore its contribution, measured through the CLU (Labour cost per unit produced, acronym from a comic book, which was once used a lot, but hasn't been heard much for a while), is low, if it doesn't remain negative.
Will it come back positive? With the army of tens of millions of unemployed people or who fear losing their job or struggle to find it, this appears highly unlikely. Yes, frictions are observed in the USA, which make it difficult for job supply and demand to match. But they are physiological, in one unprecedented situation in human history. Let's not talk so much about the pandemic (since this was nothing compared to, for example, the medieval Black Death), but about the reactions of politics, health and economics.
There will be other increases and conspicuous, in many commodities, given that not only do we want, very strongly, to return to a normal existence (whatever that means), but we would like it to be better for the environment and for society, and therefore greener and more inclusive . With, moreover, the digital revolution in full swing, even more than before, since being locked up at home has made us move much more through the Internet.
But it will, in fact, be a matter of single prices, due to shifts in preferences and changes in technology. Individual prices that must change, to signal these innovations and induce greater and different productions and solutions, in the final markets and, above all, in the production chains. As Christine Lagarde, President of the ECB said, "we trust in the ingenuity of companies in redesigning value chains".
Repeating, without fear of boredom, the mantra of Lancet: we live in a world where deflationary pressures are stronger than inflationary ones, with structural factors who, from globalization to online sales, from increased productivity from digitization to the reserve army of poor people (Karlotto would have called them), will hold the lid on a frenzied competition on price increases.
