The Inflation Tsunami Disappearing: Pins and Future Insights – Global Economic Outlook – January 2024 – Focused on

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The current of the twenty-first century has brought unmarried and rapidly successive events (the covid-19 pandemic, the energy and security crisis in connection with the invasion of Ukraine by the Russian Federation) for which we were not prepared. Their result was an unprecedented steep rise in prices. Among its main causes can be added, on the supply side of covid, economic patterns (lock-downs), problems in global supply chains and extreme profits and the consequent volatility of energy and commodity prices. Price increases were also stimulated by the demand side of the economy by its shift from non-tradable goods (the closed service sector) to the demand for tradable goods (e.g. electronics). The demand stimulus was supported not only by a tough and relatively yielding expansionary fiscal policy, but also by a loose monetary policy. The price point of companies was transferred in the form of external prices to their orders, and consumer sentiment deteriorated due to high inflation. The aim of the link is to summarize the factors behind the unusually strong rise in inflation, and to show, with the help of available data on the price behavior of companies, that if there is no external source in the near future, the echoing wave of inflation should really be a thing of the past.

Why was the inflan tsunami created?

At the end of 2020, a relatively calm period ended. Kovidov and then the energy eye intensified Russian aggression towards Ukraine was the reason for the unexpected steep rise in prices. In the vocabulary of a seismologist, it can be said that shocks in the raw material, production and distribution spheres on countries and continents caused an inflated tsunami. This swept through the rest of the world, in European countries we felt its consequences could be more significant. There are two main reasons for Europe’s position. The first is that the majority of European countries are importers of energy and raw materials (which, moreover, are traded on world markets in USD, i.e. not the euro, which is the home of most European countries). The second source is that European countries are geographically the closest to the main conflict in Ukraine and at the same time they were energetically and irresponsibly strongly dependent on Russia. However, it is appropriate to look for the detailed causes of extreme price growth in the development and relative behavior of both the supply side (especially companies) and the demand side (households, companies, wealth) with a particularly visible role of governments and central banks [1] .

On the supply side, the increase in prices in the world was first caused by the anti-pandemic closure of the economies, especially in the service sector, and by the gradually intensifying problems in global supply chains, which affected industry in particular

[2] . A kind of phenomenon called the pit began to appear shortly before the outbreak of the global covid infection. especially about the problems in container transport, which caused even the complete blockade of the Suez Canal. Due to the anti-pandemic closings, the shutdown of production caused a shortage of some works, especially ip. Their price growth was also negatively affected by the seasons of their manufacturers in Japan and Taiwan. Here, it was also shown that quickly building a factory producing IPs is not a difficult month, but rather years. Chart 1 shows the monthly indicator of global supply chain tensions from the New York Fed [4] and the sentiment indicator compiled by the European Commission. As can be seen from the graph, the beginning of 2020 first caused a very sharp crisis in the supply chain, which then culminated in the middle of 2021 and 2022, since then the tension gradually weakened and the situation returned to normal in the end of 2023. [5] The second major factor behind the inflationary tsunami on the supply side was the sharp rise in commodity prices (industrial metals, food commodities) and energy prices (natural gas, oil, electricity supplemented by a steep increase in the price of emission allowances). This escalated especially in connection with Ukraine’s attack on the Russian Federation on November 24, 2022. Taxes also stimulated price growth from the outside, or forced demand for rapid gas supply in individual countries. She was elected due to concerns about the running of households and industry, especially during the heating season. As shown in Chart 2, the highest price increases were observed at the beginning of the second half of 2022. Within a short time, the dependence on the Russian Federation (for some countries and commodities the dependence was 100%) began to break away from the strong raw materials, which took place in an overwhelming number of countries surprisingly fast and spn.

[1] Different views on the eyes of covid-19 nabz e.g. Kucharukov et al. (2022), Gonzlez-Torres et al. (2023) or De Santis (2023).

[2] Companies all over the world used the just-in-time supply regime, which they have now replaced with the just-in-case model.

[3] The authors are Lubo Komrek and Petr Polk. The opinions in this guide are their own and do not necessarily reflect the official position of the Czech National Bank. I would also like to thank Son Beneck, Jan Hok and Filip Novotný for their stimulating comments and discussions.

[4] Based on data on shipping and air transport costs, the Purchasing Managers’ Index (PMI) and the Industrial Purchasing Managers’ Index (ISM) for seven economic units (Eurozone, Na, Japan, Jin Korea, Taiwan, United Kingdom and USA) about the effect of demand

[5] It is currently growing in connection with the attack on Israel by the Hamms terrorist movement, which indirectly manifested itself in the attack on cargo ships in the area around Yemen.

External demand stimulated price growth

In the covid-like situation, due to epidemiological reasons, the functioning of establishments providing non-tradable goods has been severely limited, respectively limited activities, where a large number of residents suddenly recovered. The service sector was the most affected. Obans could not travel, go to restaurants, go to sports matches, meet for a certain period of time. In this way, pensions became so-called forced disputes, and the number of household disputes increased dramatically (Chart 3). People will then use these funds to buy things that they have been reluctant to buy for a long time, or those that they needed to function during the Covid-19 pandemic (e.g. laptops and children’s education equipment in the Covid-19 era, their home office work.) . Consumption after the forced decline associated with closures in the service sector (and especially those with physical contact) was directed to the tradable goods sector, which was not capacity- and logistically prepared for such a surge in demand and was also mired in the described problems, which again stimulated price growth.

Governments reportedly supported the demand with their firm and full support of households and companies, who received pensions for free without producing anything. Invited support from the government, which is necessary and natural in times of crisis and not only from the point of view of mainstream economics, had to be translated into the deteriorating state of public finances as well. However, for this support, households and companies borrowed money from the financial markets at a non-zero annual rate, which increased their deficits and therefore their debt load. If we look at the health of public finances in European countries, all countries are in the sick category. For this reason, the EU has so far failed to assess the country in terms of fulfilling the fiscal deficit criteria (the EC started to apply the so-called general zero clause (GEC, General Escape Clause)because de facto all countries failed to fulfill it and would thus be subject to excessive deficit procedures (EDP, Excessive Deficit Procedure)). The central banks were not left behind with their support either, as they relaxed monetary policy as quickly and powerfully as possible. [6] .


[6] The view can be changed, for example. https://www.cnb.cz/cs/o_cnb/cnblog/Menova-politika-centralnich-bank-v-reakci-na-epidemii-koronaviru/



The two crises affected the sectors of the economy somewhat symmetrically, they did not have a clear winner and. However, the covid era and the energy and security crisis had a different effect. [7] It can be noted, and we all kind of remember it, that from 2020 we will have a visible uplift and defeat here. Among the losses can be added the hundred service sectors that were particularly affected by the closures, i.e. travel, hospitality, sports events, cultural performances and public events. The pharmaceutical industry (vaccines and drugs), the IT sector (both hardware and software, including programs for remote communication) can be added to these, and deservedly so, for which the increase in profitability did not correspond to external investments and other forces, and even the sector energy and banking. [8] The price increase caused by the increase in supply at the current external demand was used by some companies for a sharp increase in their profit margins/prices/mark-ups, respectively. its profitability. Economic dictionaries were thus able to adopt the new password of hamiflation (greedflation). This requires companies to seek profit in times of steep price growth and take advantage of the specific situation on the market (there is no other supplier or there is extreme demand compared to other times). Apart from the price, companies can afford it in this specific situation, or their market share will not decrease at the same time. Price increases were equally and abnormally acceptable on the part of the consumer. Another slogan that can be mentioned is sympaflation, i.e. an empathic understanding of buyers and their price movements. This high tolerance of price increases stemmed from the understanding of the public (e.g. the functioning of local bakeries, restaurants) and the situation of entrepreneurs due to the first closures during the covid-19 pandemic (exhaustion of financial reserves), or understood oban for the health sector (increase in the prices of raw materials and energy).


[7] See e.g. kadoron prestin conference of central banks in Jackson Hole, USA, which addressed the topic of macroeconomic policy in an uneven economy in 2021. The symposium last year and last year also touched on this uneven behavior from various points of view.

[8] The argumentation was used by their advocates to determine the so-called windfall tax, i.e. an extraordinary tax on non-equal profits.

The article is in Czech

Tags: Inflation Tsunami Disappearing Pins Future Insights Global Economic Outlook January Focused

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