Inflation – staying or going?
Inflation. Until recently I’ve not known much about it. Well, apart from that I didn’t like it. Not too much of it, anyway.
Before I get into considering whether the staggering rise of inflation is here to stay, I’ll first list the occasions when inflation is good for the economy.
Benefits of inflation:
The European Central Bank (ECB) has a target to keep inflation at 2% each year. Today, inflation is at 4.1%. In the USA inflation is at 6%!
When inflation rises too much the ECB will often increase interest rates. This will usually discourage borrowing and reduce spending. Christine Lagarde, president of the ECB, has said that increasing interest rates now could do more harm than good. Reputable publications, such as Money Talks from The Economist, have reported that inflation could stabilise over the next year. This is because there are two kinds of inflation at play here, persistent inflation and transitory inflation.Persistent inflation means that the staggering rise of inflation will remain. Transitory inflation means it will pass.
I have listed some of the main factors causing both persistent and transitory inflation and concluded that there are currently more factors at play in transitory than persistent. Whilst it appears the causes of transitory inflation could take until the end of 2022 to stabilise, it does look like it will happen, so hold in there!
And there we have it. It seems to me that transitory has more factors at play than persistent. However, that is not to say that transitory holds more weight than persistent. Please let me know if you have any thoughts on the rise of inflation and if there are any more factors at play that I have not included in this article.
Article by Stephanie Anais