[Skybird]

What a surprise. I preach since yearsd that the official inflation is intentionally marginalized and that real inflation is much higher and since many years already two-digit. Die Welt writes:

Big inflation hoax? Study detects far worse inflation

Paul Jackson comes from a working-class background. When he was born in 1961, his father was sick, the family had little money, and then there was also the period of great inflation in the 1970s. "I've seen what a lot of poor people are going through right now," says Jackson, who is now chief strategist for the investment firm Invesco. And he can offer them little hope. "Central banks are miles behind in fighting inflation, unfortunately."

In the U.K., where Jackson lives, the inflation rate just broke through the 10 percent threshold. In Germany, it is still being held down by measures such as the 9-euro ticket or the fuel rebate, but when these run out, similar rates are possible in this country.

Fifty years ago, the wave of inflation could only be stopped in the end by drastic measures: Back then, the U.S. Federal Reserve raised the key interest rate to as much as 20 percent, triggering a deep recession. Is something like that necessary again today? Or will the previous, rather modest interest rate hikes in the U.S. and the euro zone suffice this time?

The latter is suggested by the fact that official inflation rates in the 1970s were still far higher in most countries than they are today. However, this could be a deception, as a recent study by economists Marijn A. Bolhuis, Judd N. L. Cramer and Lawrence H. Summers shows. The researchers addressed the problem that inflation rates used to be measured differently than they are today. As a result, they have recalculated the data in a uniform way - and come to a startling conclusion.

"Our analysis reveals that current inflation, especially core inflation, is considerably closer to past peaks than official data suggest," the authors write. Core inflation is the value obtained when energy and food prices are excluded from the calculation. It is seen by economists as an indicator of how much inflation has already spread.

For example, according to official data, U.S. core inflation was 13.6 percent at its peak in June 1980; it is currently reported at 5.9 percent - seemingly a far cry from the value at that time. However, according to the researchers' recalculations, it was 9.1 percent in 1980, which would shrink the difference significantly.
"We need a decline in inflation of a similar magnitude today"

Moreover, the inflation measure at the time makes the subsequent decline, brought about by drastic interest rate increases under then-Fed Chairman Paul Volcker, look more severe than it was. Instead of an eleven percentage point drop in the inflation rate as a result of these measures, he said, it only fell by about five percentage points. "To return to a core inflation rate of two percent," the economists write, "we need a decline in inflation today of similar magnitude to that achieved by Volcker."

So inflation is currently much more pronounced by historical standards than most observers assume, and far harsher measures would therefore be needed than have been taken so far. But most importantly, they should have been taken sooner. "The Fed should have responded as early as mid-2021," says Invesco strategist Jackson.

Instead, it let valuable time pass until March of this year. The European Central Bank (ECB) waited even longer, raising its interest rate for the first time only last month. "Because central banks have been so late in responding, they now have to act all the more aggressively."

But apparently that hasn't been enough so far. This is shown by people's so-called inflation expectations, which are determined in surveys. The Bundesbank published these data for Germany as recently as August 12 - and they are shocking. According to the data, Germans do not expect a decline in inflation over the next twelve months, but on average a rate of seven to eight percent. Even over a five-year period, they expect a rate of around five percent.

For Jörg Krämer, chief economist at Commerzbank, this is an alarm signal. "People expect higher inflation when they don't believe that central banks are successfully fighting inflation," he says. "And currently, many no longer believe that." That's not just because of the reluctance to raise interest rates, he adds. "There was an ECB crisis meeting on rising Italian government bond yields," Krämer says. "But there hasn't been an emergency meeting on inflation to date."

He also believes that interest rates would have to rise significantly further to get inflation under control. Currently, the ECB's key interest rate is 0.5 percent. "At 2.5 to three percent would be the neutral interest rate," says Krämer. So at that level, monetary policy would neither slow down nor fire up the economy. "Three to four percent would be necessary to get into inflation-fighting mode," the Commerzbank expert believes.

Paradoxically, however, the belief has spread in the financial market in recent weeks that the worst is already behind us in terms of inflation. The reason for this was the slight decline in the inflation rate in the USA in July. Now, the majority of investors believe that the U.S. Federal Reserve will raise interest rates once or twice more by the end of the year, but that it will cut them again next year. And for the ECB, too, they expect a maximum of one or two more slight increases before the Europeans do a U-turn again.

The consequence of this will be that Germany will have to live with high inflation rates for years to come, Krämer fears. "Inflation is becoming entrenched and will not go away on its own," he says. That doesn't mean hyperinflation by any means, but rates of four to five percent could become normal.

Unless, of course, things are different than they were 50 years ago. And indeed, there is evidence for that, too, because despite all the similarities between then and now, there are also many differences. "Back then, inflation was driven even more by energy prices," says Paul Jackson. This was triggered by Opec's oil price increases, but ultimately behind it was a huge surge in demand due to the population explosion since the 1950s. In the meantime, however, the population is shrinking, and demand for energy will tend to decline.

"Also, workers had much stronger bargaining power back then," Jackson says. In Germany, 32 percent of workers were members of a union in 1970; since then, the percentage has shrunk to half. "This makes it much harder for workers to fight for wage compensation, and the wage-price spiral turns more slowly today than it did 50 years ago."

But if price increases are not offset by corresponding wage increases, workers will inevitably have to save. They will be able to afford fewer goods and services. "That, in turn, will lead to a drop in demand," the investment expert says, "which then triggers a recession." Along the way, inflation sows the seeds for its own decline.

This would then be achieved by a different route than in the late 1970s, but it would not be any less painful. Especially not for workers, employees and the poorest strata of society.

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Just months ago Russia had inflation worries, too. Putin's chief of central bank did no half things,k and raise dinterest rates to 20%. Short time later inflaiton was down to managable levels and interest rate of the centrla bank followed. When I red about this ealrier this year, it was back to below 9%, at that time tendency dropping.

ECB and FED will blow up both economies. And leave the middle class as a monumental collateral damage.