Inflation is due to more than just the war in Ukraine and supply chain issues. The French author and economics expert François Lenglet sees far more diverse reasons for this. Inflation drivers that were visible long before Russia invaded Ukraine or in container ships stuck in traffic on the world’s oceans.

The war in Ukraine, delivery bottlenecks or Corona. There are many reasons for inflation. The essayist, book author and economics expert François Lenglet draws attention to other factors when considering current inflation. He also sees drivers of inflation in rising energy prices or “strong global demand since 2021 due to the synchronous upswing on all continents.”

These causes are obvious, says the essayist in an interview with ” Welt “. They could lead to the assumption “that the sharp surge in inflation is a temporary phenomenon that would disappear with them.” Observers would focus on these events and their dynamics. However, this only masks the true and lasting causes of inflation, says Lenglet.

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The essayist counts among those true, long-term inflation drivers the “ reversal of globalization and, as a result, the return of geopolitical risks .” Lenglet attributes the fact that the speed of price increases in the past 30 years initially slowed down to the globalization of the 1990s. In particular, the fall of the Berlin Wall “had a far greater share in the disappearance of inflation than the then Federal Reserve Chairman Paul Volcker, or the monetary policy of the central banks overall”.

On the other hand, however, a world sealed off by borders and fragmented by the re-emergence of “camps” working against one another is already structurally inflationary. In such an environment, competition is less fierce.

A second factor is the influence of demographics. The growth of the global working population “squeezed the cost of unskilled labor, which in turn drove down wages and prices,” explains the economist. With the economic opening of China and the adjustment of the emerging countries to “the rules of capitalism”, hundreds of millions of people were added as workers worldwide.

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“The pressure was all the greater as capital could circulate freely and flow to the lowest-cost regions. That’s over now.” In China, too, the working population is shrinking – by seven million people every year. “This sharp contraction, together with the aging of western countries, will mean that work will become scarcer and therefore more expensive.” The beginnings of this can already be seen in the form of the labor shortage observed worldwide.

Point three: energy prices. According to Lenglet, rising energy prices are “another consequence of the forces described.” Leaving aside the war in Ukraine, it becomes apparent that energy prices have been kept artificially low for a long time because they reflect the effects on climate and environment, says Lenglet.

He emphasizes that this was not solely due to the oil companies, “but to a broad consensus that made us consider the price that the environment charges us to be zero because we thought it was inexhaustible.” That too over now.

Energy price increases are nothing more than accounting for what economists call ‘negative externalities’ – indirect costs such as pollution or the need to reduce carbon emissions. It’s a movement that’s erratic in its pace, with phases of abrupt acceleration like at the moment.” According to Lenglet, the long-term trend is already there: “The energy transition is making a major contribution to inflation, it’s changing our mobility habits because the price system is undergoing massive changes .”

“The central banks have lost control,” says Lenglet in an interview. With their policy of massive money creation, they are partly responsible for the current inflation. “Apart from the structural causes mentioned, inflation is ex-ECB head Mario Draghi’s bill for ‘whatever it takes’.”

He believes that central banks raising interest rates to counter inflationary pressures risk triggering a new financial crisis. “The debt of companies and states is so high that a higher interest burden will drive the weakest of them into bankruptcy.” Then a similar domino effect threatens as after the bankruptcy of Lehman Brothers in September 2008.

“If the central banks postpone the necessary measures, then the prices and markets will get out of hand and the impending crash will be even more severe,” explains Lenglet. “Heads: I lose, Tails: You win”. That is the dilemma of today’s central banks.

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