Economic Chronicle: Is inflation left or right?

Disturbances of this kind obviously have nothing to do with any political color, but the means proposed to correct them vary greatly depending on which side the balance tilts. On the right, we favor classic tools, based on the idea that inflation is above all an imbalance of a monetary nature, which is corrected by monetary policy.

On the left, on the other hand, we rather like to see it as the result of a chase between prices and wages, which most often ends to the advantage of the former, at least as long as companies manage to maintain their margins, especially when they exercise a certain power (a relative power, defines our Competition Commission*) on the market. The monetary aspect of the thing is practically ignored, considered as a secondary corollary of the main one.

There is also a fairly shared difference of analysis on what truly constitutes inflation. The statistical concept on which most definitions are based only takes moderate account of the differences in perception between what consumers feel, mainly affected by the high level of prices for food or everyday products (level perhaps stabilized, but not back down to that which prevailed before the last inflationary shock), and what those responsible for calculating price indices say about it, attached to the averages, to the deviations from them, and to the distinctions henceforth practiced between core inflation and overall inflation, all notions that are statistically accurate but quite far from the actual feeling.

What is especially lacking in these approaches is that they take virtually no account of their relationship with time. However, the inflation that counts, the one that must be fought, is that which persists over time, and sneakily undermines the purchasing power of households. This leads to large-scale disasters, because it ruins savings and ends up disrupting the entire economic system.

Administrative price blocking is exactly what leads to this kind of chaos: it pretends, because it acts immediately, to provide the expected response. But in reality it only postpones, and then massively triggers, the price adjustment that it claimed to be able to prevent. There is perhaps no better illustration of this calamitous chain of events than the regulation of the real estate market in Geneva style. The canton, champion of all categories of rent control (or their supervision, which amounts to the same thing), is of all the ones which displays year after year, and for decades, the highest rents in the country.

Overcoming inflation does not mean restoring lost purchasing power. The redistribution of added value to which it leads – for the benefit, most often, of the owners of capital and the State – can only be influenced, if not corrected, as growth progresses and by absence of restrictions on competition, all essential conditions for salary progression.

Because, contrary to what people would sometimes like us to believe, free competition is not a neoliberal fetish, but the best way, and in fact the only way, to allow the market to compress the exaggerated margins that dominant companies manage to win.

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