Although the central bankers tried to do so, unfortunately in the end they failed to prevent the inflation spiral and unanchored inflation expectations, as Tomáš Holub, a member of the CNB Board, states in an interview with Lidové noviny. He was the first public official to admit that inflation expectations failed to anchor and convince people and companies that the increase in prices was temporary.
The wheel has already spun
On the contrary, people and producers have given the impression that inflation will be with us for a longer period of time, so it is necessary to prepare for it. While at the level of individuals this means above all the demands for high wage growth, which will further support the increase in prices, in the case of companies it is mainly unnecessarily fast and high price increases.
It is undeniable that producers and traders face significantly higher input costs. However, contrary to their statements that they still did not fully reflect them in prices, the opposite is true. Not only did they project them, but they also increased their margins. So they became more expensive than necessary. It is a question of why they did it. On the one hand, they may try to insure against the future, but Holub points to another effect.
It turned out that people are still shopping, even though their favorite goods or services have risen in price by, for example, twenty percent. And it is in an environment of unanchored inflation expectations that traders may try again or twice without any special need to increase the price.
Fall in real incomes
According to Tomáš Holub, today all companies have literally fallen into the price of mania and none of them wants to be the last. Whereas in the past the opposite was true. No one wanted to be the first to get more expensive, because that would mean that customers would compete. But now they have nowhere to go.
Unfortunately, we are approaching the moment when this spiral will simply overtake. Then, for a while, people will have to make do with significantly lower real incomes and savings. At the same time, however, it will be the first positive signal that the situation is beginning to change. Then companies will have to start getting cheaper again, because they will feel lower demand.
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