IW only anticipates a short-term rise in inflation

Photo: supermarket, via dts news agency

Cologne (dts news agency) – Economist Michael Hüther expects only a short-term increase in inflation after the corona pandemic. “The increasing demand for the pandemic will lead to higher prices, but this inflationary effect will only be temporary and concentrate on a few sectors such as the tourism industry,” writes the director of the employer-related Institute of the German Economy (IW Cologne) in a study about the the “Handelsblatt” (Thursday edition) reports.

Corona has changed people’s habits. If cinemas tried to raise prices sharply, movie enthusiasts at home would use streaming offers to which they would have got used during Corona. The same applies to restaurants: if they make their menus more expensive, more people would continue to order their food via delivery service. Only the tourism industry is in a position to increase prices, said Hüther.

But that’s only once: if people had reduced their crisis savings, they would no longer be able to shoulder higher prices. Other drivers of inflation, such as higher wages, will also fail, according to Hüther. Many companies would not have cut jobs during the crisis, but instead put on short-time work and would not have to attract workers with good salaries after the crisis. According to Hüther, higher government spending will not lead to higher inflation either.

The effects of the spending programs may be “smaller than expected, because loans and transfers are used to compensate for falling incomes and profits for debt reduction rather than additional spending.” In the short term, there could be “more political controversy” about whether the central banks should keep interest rates so low, said Hüther. But a price development that is again approaching the inflation targets would also give the central banks the leeway “to end their purchase programs and the development at negative interest rates without endangering the upswing”.

–