The Improving inflation in Europe and the USA reflected in the latest known data, compared to peaks less than a year ago, is sufficient for the Voices predicting a rapid decline in interest rates. There are numerous factors to take into account These interest rate cuts will not happen For a long time.
It should be remembered that inflation is an index that collects the Price development of consumer goods and services in an economy as a percentage. Therefore, a decline in inflation as has been seen in recent months, does not mean a fall in prices, but rather a slower price increase.
They are numerous Factors that will prevent a stable return of inflation to the 2% level set as a target value by the Fed and the ECB. most These factors are structural in nature and not just cyclically.
– Increased geopolitical risk. Safety in production and supply chain has become the main goal of companies and countries. Stock up on production or supplies Best price has become one secondary goal, due to security in production and supply. The geopolitical risks are inflationary, with Risks of supply and demand disruptions. Furthermore, the Risk of price increases certain raw material.
– Deglobalization. There is an increase as a result of greater geopolitical risk Regionalization effect or partial deglobalization. As Lagarde recently commented, the Fragmentation of the economy into several blocs it’s a fact. As a result, each block has already started trying Relocate production of goods and supply chains to “friendly areas”. (friendly onshoring). According to a McKinsey survey, the proportion of large companies “regionalizing” their supply chains is increasing significantly, reaching almost half of large companies by April 2022. Another inflation factor to consider.
Source: McKinsey & Company
– Rise of protectionism. The United States approved this Inflation Reduction Act (Inflation Reduction Act) and other laws such as Chip law, aimed at subsidizing the repatriation of manufacturing to the United States and the development of renewable energy. These are protectionist measures include state aid. Europe is trying to counter these US laws with its own protectionist measures, although as is often the case, it is lagging behind the Americans.
– ESG costs (ESG – environmental, social and good governance). Companies of a certain size must adhere to this increasing ESG requirement that go beyond mere compliance with the law. Many of these measures, whose actual effectiveness is doubtful, imply Increasing costs without impacting improved productivity or the profitability of the company. He News that is transmitted Financial profitability is no longer the company’s priority. This aspect is being major controversy in the United States. Some countries have even banned their pension fund managers from applying ESG criteria when managing these assets. (To be commented on in a future article).
– Green taxes. The excuse of achieving a more sustainable economy is different Taxes like the plastic tax, the CO2 taxwhich allow states to increase their revenues, but which entails an increase in product costs.
– energy transition. Europe although it is only responsible for 7% of CO2 emissions Area that is taking more drastic measures for the energy transition. Investments in renewable energies are intensively promoted. These energies are intermittent: the availability of energy 24 hours a day, 365 days a year is not guaranteed. Due, If different countries want to have energy security, they must double the capacity with non-renewable but always available energy.
Measures like that Ban on the sale of cars with internal combustion engines in the EU from 2035, without the infrastructure to cover this case, leads to uncertainty and additional costs. Nowadays, electric vehicles are of considerable importance more expensive as vehicles with combustion engines.
Germany is planning to ban gas boilers used for heating houses. In the event of final approval, it is estimated that the annual costs until 2028 are 9,000 million euros.
The EU is drawing up a proposal on this Ban on numerous chemical ingredients (PFAS – Per- and poly-fluoroalkyl substances) What are you absolutely necessary for the development of smartphones, airplanes, electric cars and especially microchips? A transition period of thirteen years applies to the semiconductor industry. Today the possible Alternatives are very expensive and not widely available. In order to find an alternative in time, billions of euros in investments are necessary.
– Duty. The latest thing in Europe was the launch Border tariffs on imports of products for which no corresponding CO2 taxes have been paid at the point of origin. Aside from the difficulty of calculating this tariff fairly, it also involves an increase in product prices.
Apart from the recent declines in inflation in the European and American economies, the Background of inflationary forces They suggest that inflation is unlikely to return to the target level of 2% in a stable manner in the near future. First, central banks will raise their inflation target to 3% to 3.5%, although such a possibility is currently denied. Conclusion: It’s too much It is premature to expect central banks to cut interest rates.
