It takes time for the world to overcome the inflation shock... the highest level since the 1970s

The world has entered a phase of inflation not seen since the seventies and eighties, and central bank governors and economists warned during a seminar held by the European Central Bank this week in Portugal that it will take time to overcome it.
According to “French”, the European Central Bank, which is charged with dealing with the development of prices in the euro area, believes that the current stage is unprecedented.
Its president, Christine Lagarde, promised during the “Sintra” symposium in Portugal, that “the current levels of inflation in the prices of food and industrial products have reached an extent not observed since the mid-1980s.”
She pointed out that “the increase in energy prices in recent months is much higher than the maximum limits that were recorded locally in the 1970s during the first oil shock.
Richard Baldwin, a professor at the Graduate Institute in Geneva, explained in a meeting in Portugal that the current price hike, which exceeded 8 per cent in May in the eurozone, follows a series of events in a chaotic world.
“After the Asian supply shock 2020 (as a result of the outbreak of the Covid-19 epidemic), the transition in 2021 from demand for services to demand for products caused a second shock. Instead of all that dissipating, the Russian war began in Ukraine, provoking a massive rise in prices,” he said, summarizing the situation. fuel and food.
He stressed that the factors are not limited to energy prices. With the gradual lifting of health restrictions to combat the epidemic, a sharp rise in household spending on services was recorded, and this is clearly evident with the boom in tourism and recreational activities, which in turn drives inflation.
Service prices rose 3.5 percent in May, the highest level since the mid-1990s. Indeed, this confluence of different factors is unprecedented, and Richard Baldwin argued that “there is no reference guide for this inflation”.
And on the fact that prices remain high for a long time, he stressed that with Jens Stoltenberg, the Secretary-General of NATO, warning that the war in Ukraine may last for years, the decline in supplies may keep energy prices at a high level. He pointed out that imported inflation may be associated with local factors specific to each country that have a permanent impact on inflation.. In this context, employees are demanding, with increasing urgency, their companies for compensation for the decline in their purchasing power, which may contribute to inflation. The average unemployment rate in the labor market is weak in exchange for high employment intentions, which favors an increase in wages, and consequently an increase in inflation.
Communication remains initially at the heart of the central banks’ move to control prices, but Isabel Schnabel, a member of the European Central Bank’s board of directors, explained that this communication is “currently difficult in the face of high inflation numbers” when “every day people feel the pressure of severe inflation when they buy food or go to stations.” fuel, and at a time when many suffer a significant decline in their actual income.”
“There is little we can do about the current inflation, but we will take decisive measures so that inflation returns to the level of the target that we set in the medium term,” she stressed.
“When inflation sets in and starts fueling speculation and raising wages, monetary policy must act,” warned Sebnim Kalmeli Ozkan, a professor at the University of Maryland.
This is what the European Central Bank intends to do by raising its interest rates starting in July, while at the same time being careful not to wipe out ever-slowing economic growth.
Kalmli Ozkan warned that “the issue is not knowing whether prices will fall after a period of time, because they will eventually decline, but rather knowing what will happen to growth.”
And she continued, “Therefore, some compared the situation with the seventies, which were characterized by stagflation,” as high inflation was accompanied by weak growth, stressing that “in Europe there is a risk of stagflation.”
Michael Hartnett, chief investment strategist at Bank of America Corp., a US banking group, said there was a “recession shock” threatening financial markets after the broader S&P 500 index of US stocks recorded its worst semi-annual performance in more than 50 years.
And the “Bloomberg” news agency quoted a report prepared by Hartnett as saying that while the Federal Reserve is expected to approve a significant increase in interest rates, and inflation expectations will decline, the Bull & Bear index of Bank of America continued to measure the confidence of dealers in financial markets at its lowest level for the third week. Straight.
Bank of America stated that the stock and bond markets are suffering from money outflows this week, in light of investors’ fears of the possibility of a global economic downturn, with a high rate of inflation and tightening monetary policies.
He added that about 5.8 billion dollars exited from investment funds in global stocks during the week ending June 29 last, while few inflows of 500 million dollars entered the US stock market.
Stock markets are currently declining in light of investors’ tendency to dispose of risky assets, for fear of an imminent economic recession, as inflation remains high despite the tightening of monetary policy by central banks.
And stocks and bonds in the world recorded a record decline, according to “Bloomberg” data, dating back to 1990, as the S&P 500 index alone lost more than eight trillion dollars of its value, its worst performance in more than 50 years.
Inflation in Europe rose to a new record in June on the impact of the war in Ukraine and Western sanctions on Moscow, which worries families who are now facing a sharp rise in food prices, as well as high energy prices.
“Europeans are finding it difficult to buy food,” said Philip Wechter, head of economics at Ostrom Asset Management.
“We have not seen in history such a high number with regard to the share of foodstuffs, and this will have a severe impact,” he said, referring to the increase in the prices of grains and oils used in manufactured products.
Wichter expressed his concerns about the great danger to the economy as families are forced to reduce their expenditures.
The inflation rate in the 19 euro countries in June reached 8.6 percent at an annual pace, after it recorded 7.4 percent in April and 8.1 percent in May, the highest figures recorded by Eurostat since the index was issued in December. 2nd (January) 1997.
The rise in consumer prices has reached record monthly levels since November, after last year was considered a temporary phenomenon caused by the economic recovery after the shock of the Covid-19 epidemic and the confusion in logistical supply chains.