Is looming inflation inevitably bad news?

After 2020 Annus horribilis 2021 and 2022, the years of economic and recovery, were becoming the perfect year for the French in terms of money. Inflation wasn’t too high or too low, historically low unemployment, highest growth, bright economic forecasts … all seemed to bring the country together to satisfy its purchasing power. But the future remains uncertain science, and Russia’s invasion of Ukraine has weakened expectations for prosperity. Growth should be much worse than expected and inflation should be much higher. But is it really bad enough to hear it? 20 minutes Make points.

What are the new economic forecasts?

Last December, the Bank of France forecasts 2022 growth of 3.6% and inflation of 3.2%. Three months later, on March 13, managing director Olivier Garnier gave far less rosy numbers. In the first scenario, called “conventional,” growth will fall to 3.4% annually and inflation will rise to 3.7%, based on the assumption of February 28, before the first sanctions on Russia fall. The second hypothesis is that growth will drop to 2.8% and inflation will drop to 4.4%. This “degraded scenario” is based on an average of $ 119 for oil in 2022 (compared to $ 93 for the previous scenario) and € 181 megawatts / hour for gas.

Is it bad?

“Inflation is not always negative,” reassures Christoph Blot, an economist at the French Institute of Economics and Economics (OFCE) and an expert on the financial crisis and monetary policy. Knowing whether inflation is good or bad is not an accurate science, but less than 1% is not enough to actually boost growth, he explains.

On the contrary, as the Bank of France predicts, too high inflation will eat up purchasing power and slow growth again. But how exactly does it get worse? Christoph Blot hesitates. There is no fixed answer. For some economists, inflation has been taken away from 4% too, for others it is 5%, and for some economists it is still 7%. There, with a forecast of 4.4%, we will enter a period of minimal eddy. »»

The “quality” of inflation also depends on the situation. Dominique Desjou, an anthropologist who specializes in consumption, recalls the 1960s and 1970s. Inflation was 6% every year, but there were wages associated with rising prices. “If wages are adjusted, there is no bad inflation,” laughs experts. Same memory as Christoph Blot: “When there is a combination of rising wages and inflation, the two reinforce each other and lead to a mild economic situation.”

What is the cause of this inflation?

But that was before. Today, “inflation is not caused by rising wages, and the latter does not follow rising prices,” says Christoph Blot. It is actually caused by two phenomena. The most recent are the war in Ukraine and economic sanctions between the West and Russia. They are products that raise raw material and energy prices and, by themselves, boost inflation. Therefore, according to Christoph Blot, without this economic conflict, inflation would be much milder, around + 2-3%.

Even without the will of Russian expansionists, we would be in an inflationary period. Dominique Desjeux: “The cruel economic recovery after 2020 creates bottlenecks and demand is too high compared to supply. Materials that do not arrive fast or in sufficient quantities will increase in price. »»

This time it has nothing to do with salary. And certainly, “the risk of the latter is stagnant and the situation is not comparable to the 1960s and 1970s. At that time, there were far more indexing mechanisms between wages and prices,” economists said. is showing.

How long can inflation last?

Therefore, the index rather guides us towards “bad” inflation. And the question is what the impact is and how long it will last. “Especially the bottleneck will eventually disappear and supply will match demand,” Dominique Dejou believes. Something that calms things down.

When it comes to energy inflation, everything depends on the Ukrainian conflict. “It’s impossible to predict,” admits Christoph Blot. Coronaviruses in particular can make scenarios even more difficult to predict. For example, this Tuesday, heavy pollution and containment measures in China expected a barrel of oil to fall below $ 100 and a sharp drop in demand.

If these energy tensions are eased, inflation can “remain at ideally high levels, around 2-3%.» A balance that pushes the economy and growth in the right direction. But, as you know, The future is uncertain.