Inflation – the biggest leap in a generation

by bernt & torsten

Inflation has increased around the world in the last few months faster than expected. People who live on work will be poorer this year, winners are those who have taken out large loans.

That everything is just getting more expensive right now than a feeling that probably many can sign on to.

What, then, has become more expensive?

Electricity, of course, has risen sharply measured at an annual rate, lately there been a sharp rise in petrol and diesel prices. Other things that cost more are furniture, fees and costs for housing, cars, and restaurants.

It’s very interesting. The Central banks have stubbornly claimed that the rise in inflation is only temporary and is primarily due to the winter chaos of the winter.

Most Central Banks have chosen to keep the interest rate at 0. The idea is that it will not be raised until sometime in the future maybe next year, we have to see if that is through.

So now it seems that inflation may be holding up longer than expected. Those who have eyes to see with are not surprised. The record high price of oil and diesel increases the price of transport, which sooner or later has an impact on the stores. In addition, the world market price of everything from wheat to corn and soybeans is at historically high levels.

From various countries there has been reported a price shock on ice cream, egg producers have sounded the alarm about skyrocketing costs and the global giant Heineken recently went out and explained that beer will be more expensive.

Loser? There are quite a few.

Loser? There are quite a few. The inflation rally means that for the first time in a very long time, many people will see their wage increases eaten up by rising prices. So we become poorer.

Winners are those with large loans. The interest rate is still extremely low, at the end of last year the average variable interest rate on mortgages was down to 1.5 percent, the lowest ever.

With an inflation rate of 4 percent, you actually get paid to borrow. Debts also fall over time both as a share of income and of GDP, something that is welcome for countries with large private debts.

It’s an event that looks like a thought. Debts during the pandemic have exploded to the highest levels ever, which could be a major problem.

It is less fun for those who have lent the money.

High inflation and low-interest rates reduce debt in relation to GDP. So it comes very timely. The huge mountain of debt that arose after the Second World War was grazed in exactly this way.

It is less fun for those who have lent the money, usually ordinary people through pension funds. They go backwards because the interest rate they receive is lower than the price increases.

Whether the central banks’ secret goal is to let the world get out of the debt trap should be left unsaid, but it is a fact that if they were to raise interest rates to “normal” levels, there is a risk that everything will crash.

What happens in the future remains to be seen. But right now, inflation means perhaps the biggest leap in history.