“The activation of traditional instruments to fight against inflation risks precipitating a debt crisis”

Lhe great return of inflation revives the narrative of the 1970s: energy shock, stagflation, price-wage loop… But this ignores the profound socio-economic changes that separate our two periods and their major impact on the processes inflationary: deindexation and individualization of wages, industrial concentration, liberalization of markets and rentier situations (in finance, digital, the pharmaceutical sector, fossil fuels, etc.). It is today more in a price-profit loop than in a price-wage loop that the inflationary dynamic is sustained.

The story we tell ourselves would be of little importance if it did not condition the temptation to reconnect with the old economic and monetary recipes, now inappropriate, associated with it.

Also read the interview: Article reserved for our subscribers “Inflation is the most regressive tax possible”

The inflation we are experiencing is here to stay. Admittedly, the end of the acute phase of the Covid-19 pandemic and the war in Ukraine fueled price increases through their impact on the disorganization of value chains and on the price of energy and cereals. But they also reveal pre-existing and structural weaknesses. The roots of current inflation are largely non-monetary.

In the 1970s, the acceleration of inflation had revealed the crisis of the growth regime of the “glorious thirty”, which began in the 1960s with the decline in productivity. Today, inflation is once again a symptom, that of the announced end of the financialized, globalized and reputedly self-regulated growth regime that was installed precisely in response to the crisis of the 1970s.

Perverse paradox

Inflation is one of the macro-economic expressions of groping towards a new regime capable of overcoming the inconsistencies and environmental unsustainability of the neoliberal model. Relative price distortions reflect price adjustments to sectoral shortages (energy, agricultural products, key components of the digital industry, etc.), often favored by climate change.

This idea of ​​climate-induced inflation is shared by some central bankers. Isabel Schnabel, a member of the executive board of the European Central Bank, highlights several climate-related sources of inflation, including what she described at a seminar in Frankfurt on March 17 as“climate inflation” and of “fossil inflation” (“ Monetary Policy and Climate Change “). The first refers to the impacts of global warming on economic and financial activity which increase inflation (fall in agricultural yields, productivity, disruption of supply chains, etc.). The second reflects our dependence on fossil fuels, the prices of which are set to remain high.

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