Inflation Blows Out in Germany, Spain. Started a Year Ago on Money Printing, NIRP, Supply Chain Chaos. War Threw Fuel on Already Raging Fire

Double-digit inflation has already been raging in several European countries.

By Wolf Richter for WOLF STREET.

German consumer price inflation started spiking in January 2021, over a year before Russia’s invasion of Ukraine and already hit 6.0% in November 2021. And energy costs had been spiking for a year as well.

And in March, consumer price inflation spiked by 7.6% compared to March 2021, according to the preliminary estimates by the German statistical agency Destatis, based on the Eurostat harmonized method. Russia’s invasion of Ukraine added fuel to the fire that had started raging a year ago.

The Eurozone is one of the places where a crazed central bank inflicts negative policy interest rates, and thereby negative bond yields, and increasingly negative interest on bank deposits, on the economy and households. The ECB left its negative interest rate policy (NIRP) unchanged at its last meeting, with its deposit interest rate still at -0.5%, and it is still buying bonds.

The ECB’s policies are incomprehensibly reckless in light of inflation that started exploding in January 2021.

But rate hikes – way too timid, way too late – are now seen later in 2022. And the ECB has already drastically cut its bond buying program and will taper it further.

Month-to-month, Germany’s consumer price inflation spiked by a horrendous 2.5% (30% annualized!). Both inflation figures, the year-over-year 7.6% and the month-to-month 2.5%, blew away the already sky-high expectations that economists had dared to harbor.

Based on the German method for calculating inflation, consumer prices spiked by 7.3% from a year ago, the highest since 1981, according to Destatis.

The agency cited energy costs (+39.5% year-over-year), and “delivery bottlenecks” that caused prices of goods overall to spike by 12.3%. Food prices jumped by 6.2%.

In Spain, consumer price inflation spiked by 3.0% in March from February (36% annualized!), and by 9.8% year-over-year, the highest since May 1985, according to preliminary estimates of Spain’s statistical agency INE today.

But this spike took off in March 2021 and by December 2021 already hit 6.5%, the highest since 1990. The war in Ukraine that caused further surges of the already spiking energy costs made it even worse:

For February, three European countries had already reported double-digit year-over-year inflation: the Czech Republic (10.0%), Estonia (11.6%), and Lithuania (14.0%), with Belgium not far behind (9.5%). March is going to look a lot worse.

The central bank of the Czech Republic, which is not in the Eurozone and can still determine its own monetary policies, has already hiked its policy rate four times, from 0.5% in July last year to 3.5% at its most recent meeting in February.

And for some much-needed inflation humor: In Turkey, which is not in the EU, Erdogan has embarked on the wholesale destruction of the lira by firing recalcitrant central bank heads and replacing them with rate cutters, and they cut its policy rate by 5 percentage points to 14%. And inflation has now exploded to 54%, up from 16% a year ago.

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  143 comments for “Inflation Blows Out in Germany, Spain. Started a Year Ago on Money Printing, NIRP, Supply Chain Chaos. War Threw Fuel on Already Raging Fire

  1. TweedleDum says:

    Still recall Damodaran in early 21 on CNBC saying “Does anyone in the universe believe that FED will not do anything if inflation gets to 3 – 4 %” ..Good days.

    • Wisdom Seeker says:

      But the Fed DID “do something”! They said that 3-4% inflation was “transitory” to lull us all back to sleep… Then they said they’d start thinking about stopping QE. Then they said they’d stop QE soon, and maybe start raising rates in baby-steps. Now they’ve finally stopped QE, AND raised rates… from 1/100 of the inflation rate, to 1/20 of the inflation rate. Way to Go!!

      In a year, at the current rate, the Fed’s rate still won’t rate against the inflation rate…

      The whole “symmetric 2% target” thing is a blown cover-story now, and their credibility as inflation-fighters is gone. They should all be fired for cowardice in the face of the enemy.

      • J-Pow!!! says:

        I’ll have you know that I, Jay Powell, chair of the Fed, greatly resent this insinuation! I have been fighting transitory inflation with my hefty .25% cut. It has just become more transitory!!! We will nip this in the bud yet! It’s not like people ar elk paying over MSRP for ford or anything!!

        • Mr. House says:

          I’m really starting to enjoy your posts, keep it up!

        • phleep says:

          So we are in this speeding crazy condition, and pilot JP will now break that track to perfectly administer a stall, a painless happy soft landing!

          I am diverting funds to every parachute I can think of.

        • J-Pow!!! says:

          As soon as I am officially reappointed by the great senate of the United States of America, I will be placing my shorts…err…*ahem*…I misspoke just now…we will have the first ever known soft landing to the great American cycle of boom/bust! I promise the American people I will continueb to come up with terms like “transitory” and “soft landing” to trick people…err…dam did it again…I love this job.

        • dang says:

          Lies are always more palatable than the truth. Tragedy also, in an emotional way, is usually blunted with an innocent lie concerning the circumstances of either a crime or a legal embezzlement.

        • NBay says:

          Yeah, Mr House, he REALLY IS GOOD! There is almost no point in reading Wolf’s articles anymore.

      • dang says:

        I have lived several or more epochs of economic doctrine, which is not recognized as the same science as finance, the world in which is the Fed is the jolly green giant.

        For the past several generations the Fed has seemed to be the friendly kind of giant blowing asset bubbles and controlling the free markets in favor of rich people whose crumbs everyone else splurges on, creating inflation.

        We are at an existential impasse in which the Fed either extinguishes the inflationary fire they created and deflates the asset bubbles they created. In that case their will be a painful with drawl from the sugar of manipulated markets to their pretend free market price discovery. This will hurt the rich the top 10%.

        Or will they continue to insure the gambling debts of the wealthy.

        • dang says:

          Hopefully, my legacy is that I was the only hell my mother ever raised, much more exciting than the truth.

          Wolf has a knack for presenting shocking financial pictures with aplomb. Thank goodness. If we really internalized the ramifications for the future we would sell everything, like me.

        • dang says:

          I’m counting how many times I shoot my mouth off so as not to be a nuisance, in accordance with the rules of this business and financial site.

          The business and financial matters can be discussed, apparently, independent of the most important element, the standard of living of the people. Which no one ever talks about as the most important ingredient. Instead we worry about what will happen to the rich.

        • dang says:

          Having earned my way working as a miner, I’m certain I have a different perspective from someone making their living selling Chinese goods

        • dang says:

          QE is a ridiculous concept in a capitalist economic system, contravening the rosary stone of independent price discovery, independent, competitive.

          QE is an insult too the men and women that built and sustain this concept of America. Like religion depending on the gullibility of the rubes, high tech and finance are monsters not saints.

        • dang says:

          The stock market is now worth 25 % less than it was before last week. Stocks are accurately valued by discounting their expected cash flow, not expected capital gain.

        • dang says:

          But, love defeats rationality in a young man and woman.

          These darn young people, whose world it is, may surprise us with something different than our expectation for the future.

      • Mikelyte says:

        The FED didn’t do anything till it was too late. It’s understandable they wanted to convince people inflation was merely transitory, because inflationary mindset is one of the drivers of inflation.

        Then again, it’s understandable they wanted to delay the rate hikes for as long as they could. It’s pretty much textbook classic for macroeconomics. Long story short, macro decisions as we all know can have problematic systemic effects. The supply chain issue, JIT production, erratic consumer behavior and consumption. These issues surfaced because of the changes in the macro plan.

        It’s the XXI century and we are still using macroeconomics from last century.

  2. John Apostolatos says:

    Wait till Germany needs to pay in Rubles for gas and other commodities (rest of Europe too). They have in fact been receiving Russian gas for free: they pay in Euros and then won’t let Russia use those Euros.

    Germany activates emergency plan to secure gas supply against Russia ruble mandate

    • Xaver says:

      Russia now is delaying payment in Rubles, they say they want to introduce it “step by step”. They sure prefer to sell their gas and oil.

      You got that wrong. Euros for gas and oil are transferred to Russia. These accounts are kept usable for SWIFT payments.

      • John Apostolatos says:

        I did not say anything about Euros not being transferred to Russia, where did you even get that idea? Your claim that “These account are kept usable for SWIFT payments” is also wrong since Russia is blocked in SWIFT through sanctions.

        I said Russia cannot use those Euros for anything with Europe after they are paid with them for their gas and other things. This makes Euros useless to them.

        • Wolf Richter says:

          John Apostolatos,

          “… since Russia is blocked in SWIFT through sanctions.”

          You forgot to read the small print. The Swift ban specifically excludes Sberbank (Russia’s largest bank and majority state-owned) and Gazprombank, the key bank for energy transactions.

        • Moosy says:

          They can receive the euro’s through that one bank left open but once received, they cannot use the euro’s to buy anything since swift blocks them.

          Ergo, the euro’s are useless.

          Interesting is that since the ruble was pegged to gold last Friday, the ruble is almost back to the original exchange rate.

          5500 ruble / gram gold = 15500 ruble per ounce which with current gold price works out to 80 ruble to the usd. Current ruble to usd is 81 (from 115 last week)

          And regarding the

          “ The dollar’s role as dominant global reserve currency is at risk if the Fed fails to crack down on inflation.’

          The mechanics are the other way around. The dollar is loosing it’s dominant global reserve status because of all those sanctions and other feel good measures now backfiring. And because of that, we get inflation. Don’t blame the Fed . Blame politicians with their dumb sanctions.

        • joedidee says:

          I’m sure CHINA is salivating at all EURO’S it’s gonna get from Russia
          not like USSA/MERIKA can stop CHINA or India or Saudi Arabia

    • robert says:

      Selling goods and then having your revenue proceeds stolen/confiscated/’frozen’ has consequences.
      Meanwhile, the ruble is up almost 100% from the post-invasion lows, back to pre-invasion levels, while the EU is ostensibly refusing to pay in rubles for their energy. Relative to gold, the ruble is valued at a premium to USD gold – at 5000 rubles/gramme = $2061USD vs $1933USD. (The Russian Central Bank is buying gold at 5000 rubles/gramme and offering 5000 RUB bonds backed with 1 gramme gold. Arbitrage anyone?, at least if you can use those rubles somewhere) Expressed in USD the ruble is .01325, up from .0075 three weeks ago.
      Will a gray/black market for rubles develop so nobody thinks anybody’s been naughty and has actually been paying for their goods on the seller’s terms, i.e. in rubles? Why is the ruble soaring if no Western nations agree to use Rub to buy goods/energy?

      • Isaac S. says:

        @Robert,

        re “Why is the ruble soaring if no Western nations agree to use Rub to buy goods/energy?”
        of course, b/c of currency speculators, who are betting that Putin’s Ruble mandate will force EU to boost demand for Rubles, and act like a CB defending the Ruble. However, Poland, Germany, etc. have said they will not, and are fine if Russia cuts off gas/oil. they’ll bite the bullet (now that it is spring/summer of course!)

  3. Martin says:

    I am argentinean, thus street expert on inflation. Sorry to tell you this trend is not going away. I hope my Spaniard friends get a mortgage asap and buy themselves any property they can get. They won’t have a 2.7% fixed rate for a 30 years loan for much longer. I should have done that back in 2005, when we had fixed rates mortgages. Now, credit is non existent and real estate is bought only in cash.

    • qt says:

      If people haven’t done this already, it’s too late. They miss the boat.

    • ac3 says:

      2.7 fixed @ $500,000 or 7.2 fixed @ 300,000?

      low interest rates trump everything, don’t you know… the real money is made after 30 years of staying in the same house making low interest payments. cmon’ people don’t lose out on your future!!!!!!!

    • Jeff T says:

      Martin, Has real estate protected those who can purchase it from inflation? What has worked in Argentina to protect purchasing power? Thanks for some insight.

      • Martin says:

        yes, absolutely. real estate went up un value measured in usd over the years. but the key point is that people’s income more or less followed inflation, and the monthly payment remained fixed. so they ended up either paying dimes or just cancelling the remaining debt without much trouble. you would end up paying around 20-30% of the property’ value, in less than 10 years. in other words, the government was giving out real estate just to keep the economy going. something that didn’t last long. In an inflationary economy, it is the creditor, not the debtor, who shoulders the burden.

  4. Peanut Gallery says:

    So when the US devalues, I guess all the export oriented countries of the world have to follow suit in order to maintain their domestic currency relationship with the USD

    So when the US does something moronic like devalue their currency through inflationary means I guess it means others have to do it too

    Unless if you don’t care about your currency gaining strength against the dollar and thus throwing exports under the bus (for some period of time)

  5. Flea says:

    The GREAT RESET is in full swing no middle class, only peasants ,and elects feel safe I think not

  6. cas127 says:

    Wolf,

    More transnational posts like this please…by examining different macro stats in different countries with different rules/policies, it becomes easier to isolate the factors that lead to success/failure.

    The US in isolation tends to be an abnormal outlier, whose reserve currency status has allowed it to get away with economic policies/murder that would kill off almost all other countries (who have to maintain some remote balance of imports/exports over time).

    This may not be terribly on point for this particular inflation post, but seeing the differentials got me to thinkin’…

    • Wisdom Seeker says:

      There’s a very suspicious correlation between the astonishingly rapid plunge in the Japanese Yen over the past 2-3 weeks, and the equally astonishing US-and-ally stock market rally centered in US and Japan.

      It’s almost as if a family of “market whales” all decided to borrow in Yen and buy stocks. Then they can sell the stocks at a markup and pay back the yen at a discount…

      • COWG says:

        What!!?

        An arbitrage play?

        I’m shocked, I tell you… Just shocked…

        That is some deep drill down, brother…

        Kudos, WS….

      • joe2 says:

        Standard carry trade.

        JCB balance sheet is now 100% of GDP. Impossible to raise rates and lower the market value of the balance sheet bonds. And a little problem with the price of imported commodities required by industry.

    • MiTurn says:

      “The ECB’s policies are incomprehensibly reckless…”

      Sounds just like home! Gosh!

    • phleep says:

      China seems like a huge X-factor, a mystery wrapped in an enigma at the moment ….

  7. Depth Charge says:

    The middle class, the elderly and the poor are getting crucified. Their standard of living was stolen. But hey, Elon Musk became $140 BILLION richer. Bill Gates got a cool $20 BILLION which he is plowing into farmland across the US. Ditto Bezos.

    This was/is an intentional ripoff of the citizens of the world by the already obscenely wealthy. It was never about health and safety, it was about systemic looting. CONTROL FRAUD. The people in control defrauded the populace.

    There is only one way out. Everybody knows it. I won’t say it here, but we know there’s only one way out.

    • Harrold says:

      They all got what they voted for. I’m sympathetic, but it gets harder and harder every day. The media and politicians say giving away money and services for free is a great idea. The poor and middle class lap it up. There were always consequences.

      I have no problem with a few people getting rich. You start another microsoft or tesla and you will too. Maybe we can debate how much they “deserve”, but it is a lot.

      • Depth Charge says:

        “I have no problem with a few people getting rich. You start another microsoft or tesla and you will too. Maybe we can debate how much they “deserve”, but it is a lot.”

        Nor do I, Harrold, but the MANNER in which they got obscenely wealthy I DO have a problem with. The FED should never be picking winners and losers. Without the FED, Elon Musk doesn’t get a free $100+ BILLION. Yeah, I’ve got a REAL problem with that one, Harrold.

        • cas127 says:

          But then the Fed is much more the source of the problem than entrepreneur billionaires (who at least built large companies by making very successful products).

          All the Fed does is print unbacked money.

          (Making said billionaires *richer* by badly, badly distorting the capital mkts – almost entirely in the service of covering the *ss of a grotesquely failed political class).

    • jon says:

      I totally don’t believe in the farce what we have known as Democracy. This gives a false sense of power to people which is not the case.
      I guess Americans are too divided and and in too much comfort for revo.
      And ofc, there is a reason govt keeps giving pittance to populace.

      • Auld Kodjer says:

        Democracy requires continual vigilance and effort.

        That has been faltering in many countries, most notably in the US.

        The Economist Intelligence Unit releases an annual Democracy Index of 160 or so countries.

        In 2021, the US continued its steady decline to be ranked 26th and is now considered a “flawed democracy”.

      • Harrold says:

        People still have the same power. Problem is they are lazy. They give all their power away by doing what ever the media tells them. They don’t want to be educated. They are happy having a 5th grade reading level, on average.

        Politicians tell them, vote for me and you’ll get free stuff. Nobody should believe anything is free, but they are greedy and they’d rather play video games than work. Well, here are the consequences. We’re getting em good an hard.

        People should be able to turn on TV news and within 10 minutes be able to list several lies they just told. But they aren’t interested.

        • cas127 says:

          I don’t know.

          Almost everybody I’ve met, in all walks of life, seems to be a lot more functional/sufficiently competent at their job (whatever it may be) than the “people are lazy morons who have to be led/commanded by their betters, namely *me*” argument alleges.

          From McDonalds to Starbucks (to take 2 cliched examples of alleged low IQ workforces) they somehow manage to take my money and return an adequately functional product, at the end of a long, complicated supply chain.

          Can the same be said for the billion dollar programs formulated by genius DC leadership? I have a long, long, long list of obscenely expensive DC failures.

          Contempt of your fellow citizens operates to the great benefit of the political class – endlessly proclaiming how indispensable they are.

    • NBay says:

      Oh please!….SAY IT for Christ’s sake!……you can’t just leave me here not knowing what it is I know…..and I just hate it when I have a hollow brain…..it makes me feel….uh….more inferior than usual?

  8. Gomp says:

    Obviously this can’t end well for EU. Turkey? WTF? But we have to remember that our own US Central bank is doing the same thing with their delays and shortcomings. How do you barter for a house?

    • MiTurn says:

      Erdogan…what will he do next? Rally the troops?

      Someone inform me, how does this man stay in office?

      • Cem says:

        The secret ingredient is corruption.

      • Hugo says:

        How do any of these pricks even get elected. We have psychopaths running the world!

        • cas127 says:

          Legacy media has been providing the biggest assist since the days of Leni Riefenstahl.

        • RyanL says:

          Weaking/elimination of independent media is the common denominator in all instances of people like Erdogan, Putin, MBS, Trump/Biden, etc. Obviously the extent of this control varies between countries. I think the US still has a more robust media than a lot of countries but it is much more polarized than in the Greatest Generation.

    • wakarimasen says:

      If the FED will really fight inflation the ECB will follow. You can bet on that.
      If stocks and houses devalue in this process a lot is achieved already.Perhaps we see inflationary/deflationary swings.

  9. Old school says:

    What else could occur with unanchored fiat currencies and central banks experimenting with monetary policy? Should have faced our economic problems a decade ago.

  10. COWG says:

    “ Russia’s invasion of Ukraine added fuel to the fire that had started raging a year ago.”

    And now the follow up to that is the increase in military and the necessary spending to support them, along with troop pay in dollars, adding competition to locals for goods and services…

    You have to give the EU credit, though… when they screw up something, they do it right…

  11. TimmyOToole says:

    Besides it’s rate hike has the fed done any qt? Please tell me it’s no longer buying mbs during a housing bubble.

    • SnotFroth says:

      I believe the Fed stopped QE a few weeks ago and there is an expectation that QT will start in late May or early June.

      My amateur understanding is that QT will tighten certain financial conditions (possibly mortgage market) without the Fed needing to pull harder on their broad interest rate lever.

  12. dishonest says:

    Germany has had some experience with inflation in the past.
    It didn’t end well.
    What goes around, comes around.

  13. John Henderson says:

    Love this comparison, it is happening now,but please what next.

    • Augustus Frost says:

      One way or other, the majority of EU residents are destined to become poorer or a lot poorer, just like in the US.

  14. R2D2 says:

    Inflation is being driven by external forces outside the EU. Material shortages, factory shortages, labour shortages, container shortages, ship shortages, wars, etc. There is not a lot the ECB can do to control those. Just gotta wait for prices to re-stabilize and sit it out for a year or two.

    • MiTurn says:

      I agree. And the EU is not self-sufficient in food or energy. Things could get interesting, from a historical perspective.

      Gotta blame someone. Oh yeah, those pesky Russians.

      • David Hall says:

        The EU exports more food than it imports, same as the U.S. The EU is not self sufficient in fertilizer.

    • ac3 says:

      lol

      • Cockroaches & Jellyfish says:

        Yes and Abiotic Oil will replenish our supply. Just need to give it time.

    • Peanut Gallery says:

      They can destroy some demand by raising rates

      • Flea says:

        Then it destroys stock market bye-bye retirement funds ,The FEDS nuts are in a vise ,and they created it .Given a choice between a room foll of phd,s and common sense people with experience I’ll take the later

        • JJ says:

          This brings up an interesting possibility: If the Fed raises rates and the markets blow up, would the wealth effect shriveling create a greater than customary demand destruction with each incremental rate increase as compared to times past?

        • Depth Charge says:

          The stock market has no business being as high as it is. If retirement funds are counting on bubble prices then they are a failed model. The DOW should be around 10,000 right now based upon fundamentals, and that’s high.

    • jon says:

      Demand destruction can tame inflation.
      How do you bring about demand destruction: Increase rates. As some one said: A cure for high prices are high prices!

      • phleep says:

        Price of credit must go up.

        • Cockroaches & Jellyfish says:

          & the price of saving must go down. Imagine a system that rewarded prudence as opposed to the spend everything you have now paradigm.

    • Jan de Jong says:

      You don’t think severely suppressed interest rates (to maintain the Eurozone) could have anything to do with it?

    • Jon W says:

      I hear arguments like this a lot. It has made me really understand why Friedmans’ statement “Inflation is always and everywhere a monetary phenomenon” was so profound. I can only imagine (wasn’t alive at the time) that there were all sorts of excuses going around as to why they couldn’t raise rates to control inflation, because it would hurt <>.

      If output has fallen then you need to reduce money supply, no if’s or buts. If you don’t then you don’t really care about price stability, and if that becomes true then USD is toilet paper.

  15. dearieme says:

    UK inflation may look pretty dire in April when price rises for electricity and natural gas take effect.

    • Jon W says:

      And it won’t even be accurate. The UK has an energy price cap that limits the maximum rate suppliers can charge, but it is set based on an average of the previous few months. So when prices are rising it lags quite a bit.

  16. Depth Charge says:

    “…crazed central bank…”

    Nearly 15 months ago Bloomberg reported that “pandemic era central banking is creating bubbles everywhere.” It was so obvious even to the most dull of human beings, yet Jerome Powell boldly announced that he planned to “let inflation run hot.” Nobody called him on it, and here we are. This man and his cabal are greedy, deranged lunatics who can never get enough. They need to be stopped at all costs.

    Somebody, long ago, said it was the FED’s job to take away the punch bowl once the party got started. This was irrespective of inflation, this was regarding excessive froth and speculation in assets. That somehow morphed into the FED becoming not only a purveyor of asset price bubbles, but a protector of them. This is not, nor was it ever, in their mandate.

    When you ask how this could ever happen, you have to first consider what system we have and the checks and balances within it. The politicians are the ones who are supposed to be holding the FED’s feet to the fire. But they were bought and paid for by criminal corporations long ago. And what was once two political parties has morphed into a uniparty that does the bidding for all of the corporate interests.

    If you listen to Chris Hedges’ talk about “the death of the liberal class,” he highlights what transpired within that party to essentially guarantee that there is no longer a system of checks and balances, and gave a free ticket for corporations to loot the US, with all of their political puppets on the take.

    The FED and the politicians do not work for the people of the US, they work for the wealthy. Until the people rise up and overthrow these corrupt thieves, it will only get worse. Very, VERY dark times are coming for most. There is no good path now. None at all.

    • Harrold says:

      The people will never rise up the way you hope they will. They will point their anger where the corporate media and politicians tell them. Just watch 20 minutes of TV “news” and you’ll see where — Russia, conservatives, etc…

    • drifterprof says:

      Good description DC.

      In the past, the vested interests (rich ruling class) have been able to endure by co-opting and/or corrupting enough segments of the rebellious parts of society.

      I wouldn’t bet against them succeeding with that again. But it’s a whole new ballgame now. The Internets are very hard to control.

  17. OutWest says:

    I’m beginning to believe that in life the real enemy is inflation. I could lose everything I’ve worked for and their doesn’t appear to be anyway to defend against it.

    • Mr. House says:

      You will own nothing and like it! Not even your body ;)

    • Anonomus says:

      “I’m beginning to believe that in life the real enemy is inflation.”

      No, the real enemy, is the entity’s that creates the inflation…..

    • Augustus Frost says:

      Maybe not all of it but much or most of it.

      In this environment, only appears to be the very low proportion who can speculate successfully can preserve what they have.

      Stocks, bonds and real estate either in a mania or overpriced, depending upon location. All three are ultimately destined to lose a lot of current value.

      Gold is also overpriced relative to the things most need to survive and while I think it will gain value at least versus most everything else temporarily, it’s ultimately likely to lose a lot of relative value in the future too.

      For those whose currency of reference is the USD which I presume is most here, I expect it to lose a lot of value later versus countries who produce most of what the US imports, from Asia. It’s going to lose much or all of its global reserve premium.

      This will both make imports more expensive and increase the cost of living elsewhere. A much lower USD FX rate will close the ability to financially exit for most Americans, at least to most of the places they want to live now.

    • Enlightened Libertarian says:

      Like DC said above:
      “It was so obvious even to the most dull of human beings, yet Jerome Powell boldly announced that he planned to “let inflation run hot.”
      It WAS so so so obvious in 2017 [at the latest] that we were going to get somie serious inflation. Yet all the PhD’s at the FED said it was no problem.
      I really cannot wrap my head around either incompetence and/or the corruption.
      I fell really sorry for everyone who could see it coming but didn’t have the resources to protect themselves. Those that could are going to be better off coming out than than they were going in. Everyone else got the shaft.
      [This should NOT be taken as an endorsement of anything else DC posts].

      • Depth Charge says:

        “[This should NOT be taken as an endorsement of anything else DC posts].”

        Horror of horrors lest you be associated with such filth as I. A “depth charge” ain’t a children’s bedtime story.

        • Enlightened Libertarian says:

          Well, I wanted to agree with you on this one point without a blanket agreement on your many other [angry] posts.
          Seemed reasonable to me.
          Your angry response to something I did NOT say [“associated with such filth as I.”] seems way out of line to me.
          But no offense taken.

        • Depth Charge says:

          “…your angry response…”

          There is no anger in my response to you, and I find it difficult to understand how somebody could construe that. Bare honesty is hard for some to digest, I do find.

        • NBay says:

          DC, don’t feel bad, EL shows what happens when one has $20 M….they change a lot.

  18. Beardawg says:

    Wow – with that amount of inflation occurring out East, looks like the US is gonna be an even cleaner shirt going forward as long as the Fed stays the course. Turkey = 54% annual inflation – yikes !

  19. Up North says:

    I cannot resist thinking that this is history coming to bite into baby boomers’ savings. No offense.
    All that hoarded money: That’s the only way to get money back into the system. It’s like accumulated work, but in a bank account.
    Nature is trying to fix itself.
    Before I get bad comments here: I don’t have anything against the BB. Call me simplistic.

    • phleep says:

      Yeah but meanwhile, every generation has to buy gas, housing, etc.

      Having more assets (as older folks traditionally have had; boomers didn’t invent this) means boomers can outlast this longer, right?

      • phleep says:

        Why have older men forever married younger women? Because older shows accumulation of wealth, plus survival fitness.

        • VintageVNvet says:

          nah leap,,, that’s just a small percentage, usually referred to as ”gold diggers” at least by the first wives club
          the REAL reason, as that perennial play boy guy wrote many decades ago is, ”The ONLY factor directly correlated with the success of a marriage is the AGE of the MAN.” This may have changed in the last fifty years, though I doubt it.
          IOW, men generally speaking, are a lot less ”mature” than women, and almost all the many women I have known, of three generations so far, have been very very clear about this fact.
          Of course there are exceptions, as in, ”all generalizations are false, including this one.”

        • NBay says:

          South Park explained that question quite clearly, phleep.

    • phleep says:

      Boomers will age out and the wealth transfer will be vast, unprecedented. If your family line has anything. But also jobs will open up.

      • Augustus Frost says:

        Most of the boomer wealth is going to go up in smoke when the asset mania collapses.

        Its fake wealth from an asset mania. Even adjusting for price changes, comparing reported net worth now and recently versus earlier in my adult life (early 80’s), no way the country is actually even close to being that much wealthier. It certainly isn’t adjusted for population changes.

        Look at it another way. I recently read that the top 10% of US households have net worth of $4M+. By comparison, in his early 1960’s book “The Rich and the Superrich”, Ferdinand Lundberg documented the top 1.6% had a net worth of $60K+.

        The country is richer over the last 60 years but nothing close to that. It’s just that the same (but also now older) assets have increased in “value” by 20, 50, 100 times and maybe more. Like a NY office building or high-rise apartment that might have been worth a few million or $10MM is now worth $200MM or $500MM.

        It’s increased this much in “value” primarily due to cheap money and basement level lending standards.

    • TheAltonRoute says:

      The classical gold standard ended with WWI. Can’t blame boomers for that one.

    • Enlightened Libertarian says:

      Well, I fought against that s##t for 50 years. None of my old college liberal friends will have anything to do with me because I “sold out”.
      But after I got out of college with a degree in Philosophy I started to see the holes in the theories stopped drinking the kool-aid.
      So not all BBs are guilty. Some of us are very worried about the world our grandkids are going to have to live in.

    • Wolf Richter says:

      Up North,

      Boomers have been through massively shitty inflation TWICE already, 1970s-1980s (up to 15%) and now. And what boomers learned back then, and what YOU will learn soon, is that massive inflation slashes the purchasing power of your labor. Yeah, you’ll get a big-fat raise that will make you feel good, but six months later, the costs around you have gone up by more than that. And once you get that figured out, you will learn what it’s like to live in a world with much higher interest rates, including for mortgages. Younger people have no idea what an 8% mortgage will do.

      • Gabby Cat says:

        Boomers have one big characteristic that most other generations do not – temperance. They simply know how to be patient, live within means, and have been through most life’s grand adventures (marriage, family, home). Newer generations have been handed most things with on-demand like traits. Many do not know how to be patient or balance within their means. They never slow down and learn. They don’t even know they are uneducated about the financial difficulties that previous generations know. Unfortunately, schools no longer have history books or cover the Great Depression for more then 20 minutes a year. Just the highlights and not the survival lessons learned. Many only know debt as it is the world they were born in. Be patient with them. They are very scared of financial freedom. To them it means downgrading in life. They do not see the freedom associated with their time. Poor souls!

        • tom15 says:

          My children were teenagers when GFC hit our business.
          No teacher, or books needed. Both have financial freedom.

        • NBay says:

          As a boomer, I never slowed down until that incredibly nasty 1980’s recession made me. By pure luck I escaped it and started speeding up again (although not quite as fast) and when my back was finally completely trashed from going fast, that slowed me down a lot again. I think there is only one more slow down left, which actually doesn’t sound so bad.
          Maybe that’s why some of us appear to be “mellow”.

          Oh, and this so called “financial freedom” is just a function of lifestyle, although REAL homelessness is really a bitch. Even living in a truck, you can buy peanut butter, bread, and cheese, almost on daywork alone…..so shelter is the big one.

          Which is why I hate people who treat it as an “investment”…..no exceptions.

      • Bull&Bear says:

        Wolf,

        FED mentioned that they expect that the rate would be about 2.3% in 2023-2024. I also understand that their projections have been going up significantly every meeting. Do you think it is realistic to see a 7%-8% mortgage rate in 22-23? I mean, this big of a difference between the fed rate and mortgage rate is something I don’t remember.

        Thank you for educating all of us here!

        • Wolf Richter says:

          Early in 2021, the Fed projected inflation to be 2% by the end of 2021 Now, it’s nearly 8%.

          The Fed always projects inflation to be sooner or later back to 2% because that is its inflation target.

          From what I can see, the Fed will be wrong year after year for years. This inflation isn’t going away on its own, while the Fed is STILL fueling it. It has been thoroughly entrenched in the economy. It will fluctuate, going up and down, but it won’t go away on its own.

          Those Fed projections will continue to be a moving target.

      • goomee says:

        And you will be taxed on those higher wages, guaranteed.

  20. TheAltonRoute says:

    The million-dollar question is how and when the era of fiat currencies comes to an end.

    • Xaver says:

      We will have fiat money for a long time, even with much higher inflation. Inflation is needed to help debtors. Central banks will “fight” inflation just enough to calm people a bit.

  21. SpencerG says:

    I think we are mixing different fruits into a giant bowl and coming up with Fruit Salad… while still calling it an “orange” or whatever.

    Not all “inflation” is the result of an expanding money supply. For instance the Fed, the ECB, and the rest of the Central Banks can raise rates to 25, 50, or 100% and not affect the price of petroleum.

    • Wolf Richter says:

      SpencerG,

      That is one of the silliest red herrings out there.

      Higher rates (higher cost of borrowing) cause DEMAND DESTRUCTION, and lower demand takes the heat off prices. That the PURPOSE of higher rates. That’s why oil prices collapsed during the Great Recession.

      But you’re not going to cause demand destruction by raising 25 basis points. You might cause it by raising short-term rates to be equal or above the rate of inflation, with long-term rates much higher (in part due to QT).

      The Fed is fully aware of this — and it wants to achieve a “soft landing” by raising too little too late – meaning it wants to destroy only small amounts of demand, not vast amounts of demand.

      There is also the well-documented lag between raising rates and the economy actually reacting to it. That lag was about 1 to 1.5 years in the past. This time around, it may move faster because everything has moved faster.

  22. Rowen says:

    Zoltan’s thesis is interesting, especially if he’s right that Russia has no interesting in rejoining the Western+Japanese economic system.

    • Wolf Richter says:

      Russia’s economy is smaller than that of Texas, and less than half the size of California. It will forever have to import consumer goods, industrial goods, machinery, parts, and components because no economy that small can produce everything it needs in-house. And if the rest of the world reduces its purchases of Russian commodities, Russia won’t even have the money to import those goods. Russia is tied to the global economy, whether it wants to or not. All it can do is reduce those ties, at a big cost to its people.

      • Shells says:

        Maybe Boxer will work harder and forego some prior frivolous luxuries?

        • NBay says:

          Nobody works harder than a boxer……that is the toughest way to make a (civilian) living I can think of. And look at the price Ali paid……and think of all the ones who never made it big that are paying that price.

          No, uncharacteristically, you have this comment TOTALLY wrong.

      • David Hall says:

        The Russian economy is close to the size of South Korea’s economy.

        Wars are expensive. Young men are sent to battle instead of to home building, factories, fishing, farms and mines. Wounded veteran’s are a burden. Weapons manufacture got more funding resulting in the wealth of cities being blasted to pieces. Famine stalked blockaded cities. Sanctions did unintended damage to more than one side.

  23. DR DOOM says:

    I am waiting for the Rouble for Russian Gas showdown at the O.K. Corral. I hope it doesn’t fizzle like the Fed fights inflation. More than likely it will be a yawner. It will still be better than listening to Powell and his tooth-less gumming of inflation.

  24. Maximus Minimus says:

    Q: Is payment in US dollars for international trade considered safe, now that inflation has taken off, and deeply negative interest rates?

  25. China seems to be deflating.

    • Wolf Richter says:

      China has a super-massive economic problem: the biggest driver of its economy was real estate development and construction of everything, and the hugely over-leveraged housing part of it has collapsed. That is huge.

      • Shells says:

        Will the current lockdown in shanghai influence/limit the spread of BA 2? Will chinese real
        Estate impact the everything bubble in the US? Im so curious about how all the moving parts will play out.

  26. GMac says:

    Eurozone folks didn’t get stimulus payments, which a lot of you blame for high inflation in the US. There goes half the argument.

    This US and global money supply phenomenon is so completely out of our control, it’s just starkly ridiculous at this point. Everyone trying to rationalize and explain their expectations. In a perverse way, I enjoy reading…this is the kinda media I enjoy consuming.

    As far as anyone doing anything about it, nope. We are the subjects living outside the castle walls. Sucks!

    Wolf has a group of smart people contributing. I enjoy being part of this group, and I wish us all well.

    • The Real Tony says:

      The U.S. is exporting inflation to the rest of the world because the U.S. dollar is the world’s reserve currency. My thesis is the U.S. dollar will be supplanted as the world’s reserve currency in about 4 years time thus stopping the inflationary outbreak the U.S. created. Garth Turner on thegreaterfool.ca says the U.S. dollar will never lose its reserve currency status in our lifetime so I figure its a certainty the U.S. dollar will be toast as the world’s reserve currency in about 4 years time.

      • Old School says:

        China, Europe, Japan all have worse debt and worse demographics so might be cleanest dirty shirt theory.

  27. Domestic Corporate profits are up by about a quarter last year, I just read.

    With profits and employment up, is not a bit of transitory inflation a fair price?

    There is no doubt that is transitory, since the rate rises will squelch it.

    Additionally, it may be the the higher prices are what would be normally expected of a high functioning economy. If so, they are what we want. The alternative is a slow growing economy with lower prices, which, really, is only attractive to the already wealthy.

    • Augustus Frost says:

      High functioning economy? You must live in a different one than I do.

      The one I live in has a house of cards for a financial system and more closely resembles a crack addict with long term (since 2008 at least) dependency on increased government spending for all incremental “growth”.

      Your line of reasoning is completely ridiculous.

      If you don’t believe me, cut the federal budget deficit back to the same proportion as pre-2008 and reduce the FRB’s balance sheet back to the same share of GDP for good measure.

      What do you think would be the result of that?

      • AK says:

        I would prefer not to talk about the short term results of this, but longer term result may very well be the healthy economy and prosperous USA.

    • Old School says:

      I fear that the high profits is going to suck a lot of retail buyers in at the top. With the huge government stimulus it was bound to go to corporate profits but that was a temporary bump.

  28. Maggie says:

    Our parents’ generation had company pensions, railroad retirement, WWII veterans benefits, etc. That pretty much went away with the “new and improved way to save -> the 401k”… We were sold a bill of goods. I think I read here the other day that 410ks are a way to generate transaction fees for the money managers… I am simply amazed when I do taxes at the page after page that prints out for the “behind the scenes activity” for my 401k that became an “IRA” when I retired and moved it to “my choice” of money managers… I think my Dad’s company pension and the “gold watch” will be forgotten or maybe thought of as a fairy tale in not too many years!

  29. Frank says:

    The Germans are traditionally very anti-inflation. It will be interesting to see how they react. The inflow of refugee Ukrainians will be a boon to their economy (largely educated/talented, younger, workforce). Agencies have already popped up that match refugees with jobs. They may be the saving grace for Germany. Fill the jobs so desperately needing to be filled. As the first world population declines, refugees like this will be a hot commodity. There will be competition to accept them, not turn them away.

    • Augustus Frost says:

      Depends whether the Ukrainian refugees are actually from there and not somewhere else.

  30. Rubicon says:

    We have friends in Italy, and Germany. In no way does their inflation match ours in The States.
    According to Dr. John Williams, he uses the tried & true method of measuring US inflation before the financial gimmickry presently in place.

    He states that the real inflation rate is about 15%, and NOT what the govt/Big Business wants citizens to believe: 6%.

    In the two above-mentioned countries, we have been comparing their prices with ours. Without question the US has a far higher inflation rate here.
    Some of this, as explained by Dr. Michael Hudson, has to do with so many US monopolists who are purposely increasing costs.
    Any way to make greater profits suits their mentalities.

    • Wolf Richter says:

      Rubicon,

      1. So well, I have relatives in Germany and Austria. And they’re griping BIG TIME about massive price increases — heating bills, fuel, food, holy moly.

      2. Williams has concocted a bad joke sprinkled with BS for people who cannot do basic compounding math. His numbers are total BS, and you can do the math yourself to prove that it is total BS, if you know how to do it. I have done it here in the comments way too many times.

      3. Yes, price gouging, pricing power, businesses being confident higher prices will stick, and consumers paying whatever and are all roughly the same thing and are always an essential part of inflation. Hudson is just a little slow in figuring it out. And once he figured out what everyone has already known forever, he made a big deal out of it, and people who have never lived through the 1970s/80s inflation, and don’t understand what inflation its, believe that he discovered it. Duh.

      • Anthony says:

        I guess the only way to prove the true rate of inflation is for someone in the USA to do a yearly photo web site of rising prices. They then go into supermarkets, estate agents, car lots etc etc and take real photos on the same day each year. Add photos of increases in heating, property, insurance bills etc etc……….

        Each year they put up the 500 photos(or so) on a web site showing true inflation (or as true as possible)

        Give yourself a fancy name like Tru-inflation.com and voilà, you have a business…

        It’s a new business opportunity for someone, any volunteers?

        • Tony22 says:

          Historical newspaper sites have full page spreads of ads.
          Most newspapers have archives that go back to the 1990s.

  31. Xavier Caveat says:

    I liked the older Turkish lira back in the day before 2005, around a million to the buck.

    You felt so rich before they dropped 6 zeroes on the new and improved current version, you’d blow 10 million on lunch in Istanbul.

  32. Marco says:

    Inflation rages for months and the FED still ‘talks’ tough

  33. ru82 says:

    Lendingtree came out with a report stating there are lots of vacant homes. They said 16 million total. They are using the U.S. census information.

    They are using aggregate vacant that includes, houses for rent but vacant, houses where a rent agreement is signed but tenant has not moved in, houses that have been sold and new owner has not moved in, and just vacant for no reason.

    The info is from the U.S. Census site. The top 3 states with the most vacancies were Vermont, New Hampshire, and Alaska. All had 20% or higher vacancy rates. Anybody from these states confirm this. This is crazy high. Vermont was the highest at 22%. Sort of hard to believe.

    Then if I go to the FRED economic data site and look at one of their rental vacancy rate tables, Vermont rental vacancy rate is at 2.5% vacancy and home vacancy rate is 0.5%.

    Talk about a mismatch of data.

    • SnakeEater says:

      I can only speak anecdotally, but I would qualify that with the fact that I work real estate sector adjacent and I noticed more so than I have ever seen that people are buying a house and either A) not moving in immediately, with no plan to move in or B) they move in to a newly purchased home with no intent on renting out or selling their previous home.

      The shocking amount of this I’m seeing in what would be listed as a “bubble” market, is enough to make realize the inventory that will come online in the next year or so will absolutely blow people away.

      I’ve tried to find legitimate data to back this up, but most surveys are national and will not encapsulate any of the frothier markets. That’s probably why when you read local articles about housing prices, you get the usual, “Buy now or be priced out forever” mantra.

  34. nook says:

    Wall Street cabal runs the show

  35. goatfarm says:

    i see a few trends that might save people from this crises, clean energy, stay at home/work from a farming town/grow your own stuff/farmer markets. its already happening across the world. some people will find a way to survive this. its folks who cant take a few months to upgrade their skillset and work at a higher level.

  36. Pehdro says:

    Hi from Spain, the great idea of ​​the government is to lower gasoline by asking the businessman to advance his margin, and then if that is the case, he will return it.

    They are already saying that there are two options: 1 they are going to raise the price first, before making the required reduction.

    2. On Friday all gas stations close.

    Tomorrow I’ll tell you how things are going from Venezuelspain

  37. RedRaider says:

    Here’s what I learned about inflation during the 70s. It’s not very sophisticated but there’s not a lot the average Joe can do about it.

    Basically, you learn to grin and bear it (also, to curse it). When you’ve been experiencing it for awhile you learn:

    When you receive your paycheck, spend it. Don’t try to spread it over the pay period until you get you next check. Do all your grocery shopping right away before prices go up on you. Fill up your gas tank. Pay all your monthly utilities. If you have any left over pay down your credit cards. If you receive a pay raise it’s going to fall short of inflation and making ends meet will only be a little bit harder instead of a lot harder.

    I don’t think many people today are prepared for this :-(

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