Polystyrene, wood, reinforcement steel, and other materials have not only become expensive, but their lack in warehouses indicates that the increase of prices will continue. It is similar with notebooks, bicycles, or maize.
Container transport prices have quadrupled since last autumn. The DJ Commodity Index has increased by 86 % over the last year which brings it very close to its maximum of the decade from 2011.
We can come up with a story for every type of goods. Building material is expensive as we are all building and renovating our houses during the lockdown. We cycle more because we are bored. Many steelworks were closed, which has made the supply throttled. The Sues Canal was blocked, and so forth.
It is not that the above mentioned didn’t happen. The thing is that the central banks are not mentioned in the plot. The balance sheet of four biggest central banks (Fed, ECB, BoJ and Chinese PBOC) grew from $5 trillion to $19 trillion between 2007 and 2020.
During the past year, the total balance grew yet by another $10 trillion. No, I did not make a mistake, it is 10,000 billion newly printed dollars in a year. This monetary stimulus and its rate far exceed everything we saw during the crisis after 2008.
Even though then there were many rumours about the inflation, it has not come. Well, it has not come in the form of rise in consumer prices, but various assets growth such as stocks, real estates to cryptocurrencies was noticeable. Moderate economic growth has kept consumer prices more-or-less balanced.
The pandemic has decreased the number of hours worked, stopped the production which has caused the reduction of offered products. Massive government programs financed almost solely by the central banks (only this year the ECB will buy up whole new debt of the states and bite off a piece of existing one) has allowed significant part of the population to maintain their income.
Several corporations have also raised wages or paid bonuses this year. New social benefits were added (for instance pregnancy allowance or 13th pension in Slovakia) and the USA has even used the helicopter money in the form of generous checks.
At the same time, gigantic public spending programmes have been launched. The EU itself is supposed to spend 700 billion euros, another hundreds of billions will be added by member states, not even to mention the USA. What will happen to the prices of polystyrene in Slovakia, if its production has been reduced, but people have not lost interest and money to buy it while additionally to it a thermal insulation programme of 500 million euros is supposed to be launched?
The question stands: will our market basket handle this monetary experiment, or will the shaken clogged ketchup bottle explode and spill all over the table? If it explodes, the enthusiastic political building of “new” post-covid world will be in dire straits. Not that we would turn into Zimbabwe, but 5-6 % inflation may cause serious inconvenience in the world of one percent mortgages and Italian bonds.
Translated by Paulína Ivanišová