How are inflationary deflation and hyperinflation caused

Effects of the corona crisis on the economy - "There will definitely be inflation"

Share prices have rebounded, but food prices are also rising. The economist Gunther Schnabl explains why we should expect inflation rather than deflation and why the rise in prices will hit people harder in northern Europe than in the south.

Traditionally, the measurement of inflation is based on a shopping cart that reflects the consumption habits of the citizens / dpa

Author info

Bastian Brauns was in charge of the “Capital” economic department Cicero from 2017 to 2021. Before that he was business editor at Time online and at the Stiftung Warentest. He completed his journalistic training at the Henri Nannen School.

How to contact Bastian Brauns:

Gunther Schnabl is an economist at the University of Leipzig. There he holds a chair for economic policy and international economic relations and heads the institute for economic policy.

Mr. Schnabl, you research at your institute particularly on the subject of inflation. Do we now have to expect sharply rising prices because of the corona crisis?
There will definitely be inflation. The only question is what face it will have. On the one hand, asset prices are already pointing steeply upwards again. On the other hand, prices have also risen for some consumer goods.

In which areas will it inevitably become more expensive? In which ones maybe even cheaper?
It is already becoming apparent that pre-crisis trends will continue. Share prices have rebounded quickly, gold prices continue to rise, and the flight into concrete gold appears to be continuing in the real estate market as well. The prices of some goods, such as food, have also risen recently. This trend could intensify. If many restaurants, hotels or shops have to close as a result of the crisis, competitors can raise prices. Even if drugs are again produced domestically instead of in inexpensive foreign countries, their prices will rise.

However, some experts warn that we will face deflation.
The lockdown and the masks spoiled people's buying mood. When stores have to close, there will be sell-offs first. Wages will also come under pressure across the board. That speaks for falling prices.

Why would that be dangerous at all?
Since the price level in the USA fell sharply during the Great Depression in the 1930s, many people equate recession and deflation. It doesn't have to be like that. In the second half of the 19th century, the gold standard was accompanied by high growth and falling prices. Fortunately, falling prices increase purchasing power. The argument that most consumers postpone their purchase decision because they expect a price reduction of 1 percent to 2 percent in the course of the coming year is not valid.

But you say deflation is unlikely?
Yes, in the medium term. In response to the government lockdown, all central banks have responded with gigantic purchase and credit programs. This year the ECB will buy bonds worth EUR 1.1 trillion and expand its credit volume to the banks to up to EUR 3 trillion. At the same time, gross domestic product in the euro area is estimated to shrink by up to 10 percent. Much more liquidity is chasing less goods. Wherever this glut of liquidity hits, prices will shoot up. However, it is conceivable that asset prices will rise while consumer prices will remain low because wages will come under increasing pressure.

Christa Wallau | Thu, May 28, 2020 - 12:57 pm

In the foreseeable future, many people's wages will likely no longer be sufficient to pay for the sharply increased rents and the increasingly expensive products, not to mention those who are unemployed due to the discontinuation of businesses as a result of the corona situation become. The people affected will not simply put up with that. Politically, there is likely to be an even stronger shift to the left than is already the case in DE. Because on the other side are the winners of the years of zero interest and low wages policy: the wealthy who have enriched themselves on the stock market and invested heavily in the real estate market, so that they only have to cash in.
I foresee that we will have governments that will have no other choice than to levy higher taxes on income from stock and rental income; because where else should the money come from, which the state gives to the many
Hartz4 recipients have to distribute in order to avoid unrest?

Heidrun Schuppan | Thu, May 28, 2020 - 4:36 pm

In reply to The gap between rich and poor will continue to widen by Christa Wallau

means rising rents - the "reform" of the property tax already stands for it. How far should income (falling) and rents (rising) still gape apart? Will the state, the taxpayer, build social housing for all those who will then no longer have a roof over their heads? Will housing benefit then also be paid for those who actually have an apartment that is too expensive (according to the legislature)? At the beginning of the pandemic, the BuPrä gave a speech in which he invoked cohesion in society and that this crisis emphasized the best in us (analogously) - but it is already starting with the distribution struggles and the further divergence between rich and poor . Nobody thinks about a rent freeze, because the landlord's return is stipulated in the GG - Article 14 is nothing more than waste.

Brigitte Simon | Thu, May 28, 2020 - 5:43 pm

In reply to The gap between rich and poor will continue to widen by Christa Wallau

... we only calculate in trillions.
I feel an inflation, which is indirect for me, in the case of packaging, the price of which remains constant, but less content. Air conceals the common packaging size.
And it is precisely this useless air that blows us, well-calculated, very cold in the face.
That's where the dilemma begins. The EU must not go into debt, it is forbidden.
Loans may be granted. These are demands, not gifts. Where from and not steal the necessary money? Most Germans have holes in their pockets that can be empty. A look at Italy makes you angry. This
Land, representing high national debt and private wealth. This government refuses to effectively tax him. Where reforms?
The printing presses are running hot. The southern states, Macron's France, are on fire.
We are threatened with hyperinflation. There is ongoing devaluation in the course of general price increases.
The expansion of the money supply is the most important cause of inflation.

Bernd Muhlack | Thu, May 28, 2020 - 5:04 p.m.

I recently read that the BMW heirs Klatten / Quandt received a dividend of around € 500 million in 2019. I don't even want to know if that's true, how it was taxed.
I am not interested in any of this, I am not envious, I do not belong to the increasingly rampant "expropriated-you!" Front.
Then you buy a box of Japanese mineral water for € 800 and auction a tuna for 2.5 million for the many restaurants of your own.
So what?

I'm not an economist, after all, I graduated from another useful faculty.
As a solo and self-buyers, I have a daily look at the price development in contrast to many "aloof world explanation / rescuers".
Although I am flexible, I have an unwavering base of must-haves.

"Expensive" is known to be relative, it depends on income, see above.
Paprika, strawberries and fresh fish are just "expensive", from the point of view of a Hartzer, for example.
Others also buy a house at the cheese counter via i-phone: okay, I'll take that!

A BMW?