“There is a choice between two approaches: that of the French government, which thinks that this rise in prices will not last long and that we can therefore hand over a ladle of money to support consumption, and positions which are more those of the central bankers who say that we must break inflation at all costs”, summarized at the opening of the Economic Meetings of Aix-en-Provence (south-eastern France) the president of this forum, Jean-Hervé Lorenzi.
“The speed of change, that is to say the installation of a new macroeconomic regime, surprised me,” acknowledged economist Christian de Boissieu. For France, for example, the INSEE (National Institute of Statistics) predicts a consumer price index up 6.5% to 7% in the fall, unheard of for nearly 40 years.
As a result, “the US Federal Reserve, the Bank of England and the ECB (European Central Bank) come into play to raise interest rates, slow growth and through this dual mechanism reduce fiscal space” , explained the chief economist of the International Monetary Fund (IMF), Pierre-Olivier Gourinchas.
In the current environment, there is therefore “less room for the budgetary and more room for the monetary”. Clearly, governments’ room for maneuver to fight inflation is reduced because they can no longer finance public debt as easily as in the past, while central banks have to raise rates to curb the rise in prices. .
The surge in the prices of certain raw materials or electronic components had begun to be transmitted to the entire economy even before the start of the war in Ukraine in February, against a backdrop of post-pandemic recovery and a supply below demand.
– Regressive tax –
The European Central Bank, which had been fighting for a decade against a rise in prices that was too low compared to its target, located around 2%, still considered last year that inflation would quickly return to this level. In its latest projections, published in June, the ECB expects a deceleration to 3.5% next year and a landing around 2% in 2024, after a price increase of 6.8% this year in the euro zone.
The need to quickly implement the energy transition to reduce our dependence on fossil fuels, accelerated by the desire to stop Russian gas and oil imports as soon as possible, could however support the rise in prices for longer.
Inflation could also be fueled by the relocation in Europe of value chains essential to our sovereignty, and in the future by the introduction of a carbon tax at EU borders on imports, in order to combat global warming. climatic.
“We have lost for some time the disinflationary engine of globalization”, estimated during a debate the CEO of Capgemini, Paul Hermelin.
The economist Patrick Artus for his part predicted at the end of June in a column published in the French daily Le Monde the reappearance of the monetary cycles which had disappeared in the 2010s. During these cycles, the central banks had not hesitated to provoke recessions to break inflation, such as from 1980 to 1982, in 1990, 2000 or even 2008.
“We must break inflation”, because it is “the most regressive tax there is”, which “trims the wages of the poorest, prevents investment for the future. It disrupts all the mechanisms of growth and all the distributive mechanisms”, explained to Aix Luis Pereira da Silva, deputy director general of the Bank for International Settlements, an institution based in Basel (Switzerland) sometimes called “the Central Bank of Central Banks”.
Economist Jean-Paul Pollin, for his part, assured AFP that we can control inflation “if we manage to have more growth, with an income policy, a Central Bank that becomes credible again and manages to believe in the good people that we will bring inflation back to around 2%”.
This is the objective pursued by the French government, which this week announced measures to support purchasing power, while calling on business leaders to increase wages when they can.