Inflation|Inflation: “Food is more expensive than meat” The impact of “hidden tax” on life and wealth in the era-BBC News

Throughout the world, the 10-year break-even inflation rate in the United States, which is an indicator of inflation expectations, has risen to its highest level in nine years, while the 5-year indicator has risen to its highest level in 16 years.

Words such as “inflation monster” and “shortage era” frequently appear in the headlines of major international media. Inflation, as a sequelae of the new crown epidemic, has become a reality that everyone has to face.

“The inflation bomb that our country is facing is partly due to the fact that we are printing a lot of money.” A tweet by U.S. Senate Ted Cruise in August put the inflation board on the United States itself.

After the epidemic swept the United States, the risk of economic crisis has increased sharply. The Fed, which plays the role of the “global central bank”, “fires all the bullets in one breath” and prescribes the prescription of “zero interest rate + quantitative easing”. The last time the drug was so sufficient was after the 2008 financial crisis, so it is also known as the “crisis mode.”

In the following year, governments of various countries followed the pace of the United States and launched various stimulus plans, totaling more than 10 trillion U.S. dollars.

A large amount of money flows into the market, which is bound to increase prices. Nobel laureate and economist Friedman once asserted that “inflation is a monetary phenomenon at any time and everywhere.” This sentence is widely quoted to reveal the nature of inflation.

But the huge and extensive impact of the epidemic has made this round of inflation a little different. Zhang Wenkui, a researcher at the Development Research Center of the State Council of China, wrote an article that the new inflation is “cunning” and may not immediately set off a wave of all-round price increases. Instead, some “slit eggs” will be picked to bite, such as green onion, ginger, garlic and vegetables. Meat and oil, agricultural products, bulk commodities, important raw materials.

“These items are either unable to expand the supply in time due to natural conditions and transportation conditions, or because they are endowed with a high degree of transaction attributes, they are easy to attract a large amount of funds, or because they are already in a staged tight balance or even shortage.”

Many analysts have described the economic rebound brought about by “printing money” as “strong but unbalanced.” The logic behind it is not difficult to understand-subsidies for individuals stimulate demand for consumer goods and keep the global supply chain under the lockdown of the epidemic. We must also deal with demand far higher than normal years, such as strong demand for personal computers and other electronic products, making chips in short supply and pushing up the prices of products that rely on chips.

The above-mentioned demand will push up the consumption of energy and raw materials, and push up prices, and the soaring global logistics prices will make the price increase “even worse.”

Arodipu Nandi, vice president of Nomura Securities, told the BBC that if a company imports expensive coal, it will raise prices. Companies will eventually pass these costs on to consumers, which may lead to inflation, either directly or indirectly.

“If the crisis continues, consumers will feel a surge in electricity costs. Retail inflation is already high because everything from oil to food has become more expensive.”

In this way, the epidemic spread. Isabel Schnabel, Executive Committee Member of the European Central Bank, said, “The current surge in inflation can be compared to sneezing: the economy’s response to the epidemic and the dust raised by the post-epidemic recovery.”

In addition, a large amount of “printing money” will depreciate the U.S. dollar, and Mike Frank, a senior analyst at The Economist Intelligence Unit, told the BBC that a weaker U.S. dollar is good news for anyone with dollar-denominated debt, including many emerging markets. .

Yuan Zhile, a senior lecturer at the Business School of the Chinese University of Hong Kong, reminded that once the United States implements a tightening monetary policy, other countries, especially developing countries, may be harmed.

In the face of the scourge of price increases, should people talk about “all-round” discoloration? Experts explained that in the end, we should look at a “degree”, a small amount is beneficial, and too much may be harmful.

From economists to government agencies, the consumer price index (CPI) is often used to reflect changes in the prices of consumer goods and services purchased by households. The rise or fall can reflect the degree of inflation or deflation to a certain extent. Generally speaking, when the CPI continues to rise sharply, it will be considered that inflation has occurred.

Generally speaking, if the dosage is small, it may be a “good medicine”, and if the dosage is large to a certain extent, it may be a “poison”.

When the inflation rate remains at a low level (2-3%), economists call it an economic “lubricant”, because a small increase in prices can increase the income of entrepreneurs, stimulate them to invest further, and increase economic vitality.

However, if the inflation rate rises further by more than 10%, it will enter a more dangerous range, which is called sharp inflation. At this time, people began to shake their trust in currency, people were robbing purchases of money, the order of production and consumption was disrupted, and a certain degree of turbulence occurred in the society.

Although sharp inflation is dangerous, it is not uncontrollable. The real catastrophic consequence is when the inflation rate exceeds 100% and enters the “hyperinflation stage”, the government completely loses control of prices, the people completely lose confidence in the currency, and society collapses. Hyperinflation is not uncommon in history, but every time it occurs, it is often accompanied by political consequences.

For example, in Germany after the First World War, prices rose by 2500% in a single month, and the currency eventually depreciated by one trillion times. The general public was dissatisfied with the breeding of populism, which became one of the factors for the Nazis to come to power.

China began its reform and opening up in 1978 and experienced three sharp inflations. In 1997, the CPI growth rate gradually fell back to a moderate 2.7% range. Since then, China has entered a 23-year period of low inflation.

In these 23 years, moderate inflation has accompanied China’s economic development. Only in 2008 and 2011, the CPI increased by more than 5%. After the outbreak of the epidemic, the CPI rose again by “breaking five”, reaching 5.4%.

The fiscal deficit rates of the major economies are rising. How can countries absorb such a high debt ratio?

The European Central Bank and the Bank of Japan have also followed suit. Like the Fed, they have initiated deficit monetization, that is, repaying government debts by printing money. This behavior is also called “inflation tax” in academic circles. The government overdrafts banks and issues additional paper money to make up for the fiscal deficit and reduce the purchasing power of the people’s currency.

In other words, inflation can be regarded as a kind of implicit tax, there is no legal tax rate, and there is no tax agency. If you hold a hundred-dollar bill in your hand today, it will still be in your wallet tomorrow.

But the central bank issued an additional one hundred yuan, and the things produced in the market did not increase, then the purchasing power of the one hundred yuan in your wallet would be diluted, and the government would spend one hundred yuan more, and the purchasing power would be transferred from the individual to the government. It is equivalent to collecting taxes.

In this process, who was the most injured?

Friedman, who is well-known for his research on inflation, might not have imagined that Mao Yushi, a Chinese liberal economist, also discussed the harmful effects of inflation. Mao Yushi once said–

“Inflation is a hidden tax. It imposes a tax on all people who have money in their hands, who have deposits in banks, and who have money in the future. Moreover, this tax is not very fair. It is not based on the amount of wealth. They are levied only according to the amount of currency they hold. Really wealthy people may not hold a large amount of currency. Most of their assets are stocks, real estate and various physical objects.

“So inflation has changed the distribution of the stock of wealth, and also changed the distribution of income. Generally speaking, inflation is the most detrimental to public and religious staff who receive a fixed salary, which will affect their enthusiasm for work and reduce their productivity. It is vital to maintain the normal work of the government and school education.”

It is worth mentioning that Mao Yushi received the “Milton Friedman Freedom Award” from the American think tank Cato Institute in 2012.