Consumer goods and services were no less than 7.59 percent more expensive in January than a year earlier. This breaks the historic record from 1983, when inflation stood at 7.90 percent. Last December, the inflation figure was still at 5.71 percent. How long will life become more expensive and where is the solution? According to retail expert Pierre-Alexandre Billiet, we have to look for the solution literally close to home: “Local consumption can serve as a buffer to absorb the shock.”
Inflation rose from 5.71 to 7.59 percent in January, the highest level since August 1983, when it was 7.90. The consumer price index is up 2.23 percent, the largest month-on-month movement since March 1951, when it stood at 2.93 percent. The high inflation this month is, as in recent months, attributable to high energy prices. Electricity has risen 70.80 percent in price, natural gas no less than 153.70 percent!
The main price increases came from electricity, natural gas, bread and grains, motor fuels, health insurance, non-alcoholic drinks, vehicle purchases, heating oil, sewage, dairy products, meat, non-durable household items, hotel rooms and fire insurance. Airplane tickets, on the other hand, had a lowering effect on the index.
“There have been many major inflations in the past, but now we are experiencing the largest of this century. We also have very little control over it.”
Inflation is of all times. However, this period is quite unique. “There have been many major inflations in the past, but now we are experiencing the largest of this century. We also have very little control over it,” Pierre-Alexandre Billiet, CEO of Gondola and professor of retail management and consumer goods at Solvay Business School, is somewhat concerned.
First and foremost, why are we in this situation?
“This has to do with a complete disruption of the market, both financially and economically. Companies have been flattened. Manpower was lacking, especially in the industrial field, so production was unable to keep up with demand. On the other hand, governments have pumped enormous stimuli into the market during the corona crisis. Consumers have started to consume unbridled, but this is still nothing compared to those stimuli. In concrete terms, that part that we have not consumed remains in the financial system or is saved. If we want to convert those stimuli into economic growth, we should actually consume even more. Consumption is currently following the stimuli that there has been, but actually it should exceed that.”
“We still have a problem. If we consume even more, there will be more and more difficulties in terms of logistics and production. The supply cannot then follow and the world economy is completely bursting at the seams. If, on the other hand, we were to consume just less, out of fear of inflation as we see it a bit now, the economic engine would stop running. That would certainly be a problem for Europe.”
“A large part of inflation in Europe is imported inflation. Most of our energy is imported. There is a huge increase in prices. In the US, on the other hand, we see an economic inflation, with a lot of demand, consumption and production. So we don’t really have that inflation under control and that’s a problem. In any case, prices will continue to rise because the economy has become so destabilized. Families will then be the first to pay the price.”
Do we see this inflation in all sectors?
“It’s really about everything. The more industrial a product, and thus the more intermediate steps in its development, the greater the chance that the price will rise without you being able to regulate it. Such products involve logistics, packaging, energy, and so on. All those intermediate steps are faced with a price increase. For example, we have not yet seen anything in the field of investments, such as real estate. That enormous mass of stimuli will also have a very deregulatory effect there.”
“In the short term, we will first look at consumption, which makes up more than half of the Belgian economy. Much of it has been imported. These government incentives therefore do not actually support the Belgian economy, but mainly the foreign economy. That is the great paradox. Once the money has been consumed, it is no longer in Belgium. That is a big difference with countries like Germany and France. In a way, that makes our economy poorer.”
What do you think is the solution?
“The big question for consumers is: what do I do best with my money in these times? If you save your money, inflation causes a big loss in purchasing power. If you consume, you know that economic growth in our country is very limited, because the majority of our goods come from abroad. This is a very difficult question for the Belgian consumer. In any case, it is best to keep a close eye on all prices to determine the increases.”
Anything local will have a greater impact in the future because it is manageable and impacts our purchasing power as well as the economy.
“In the coming years, there will in any case be a kind of climate incentive to consume more sustainably, which will require major investments from the government. Think of more energy-efficient living and energy from our own gas-fired power stations and wind turbines. The government will put this forward as a fully-fledged alternative. Coupled with this, we will consume more intelligently. Anything local will have a greater impact in the future because it is manageable and impacts both our purchasing power and the economy.”
“That is no longer just a goat wool socks story, that is depicted in a fun and cute way. No government has an impact on the price of, say, cloud services. That goes beyond local governments. With local consumption you create a kind of autonomy. That will gain more and more economic capacity, where that used to be just a nice thought. Local economy can serve as a regulator in times of inflation, even though it is so much smaller than the global economy.”
In the coming period, the US central bank will put the brakes on with interest rate hikes to curb inflation. Are we close to a peak?
“That is a difficult question and unfortunately I do not have a crystal ball. I quote one of the chief economists at asset manager BlackRock: “An oil barrel is now at $90 and we are going to a maximum of $110.” There will be another rise in commodity and consumer prices, but not to the extent we have seen them recently. The main question is what the consumer will do. Then comes the social aspect. In Belgium, 20 percent of the population lives below or around the poverty line. The rise in prices is only partly converted into automatic wage indexation. It does not follow the price increases of the economy one-on-one. So that can cause real difficulties for a fifth of the population.”
We hope to live in a free and corona-poor world again soon, with the ‘roaring twenties’ as the popular term. Could those released brakes become a poisoned gift?
“Absolute. The worst that can happen to us now is that all money exchanges open and those many stimuli are converted into consumption. Then that would be economically interesting, purely on a financial basis, but then our economy would be completely deregulated. Look at it like a dam. If all gates are opened at once, you will have both a supply and demand crisis. The economy won’t be able to handle that. You can already see it: on certain car models you have to wait two years before they are delivered. If you also get wrong prices and a huge demand on top of that, then it will no longer be manageable. There would then be a huge rise in consumer prices. In that case, the richer people in particular will be able to continue to consume. How big do I think that chance is? That is difficult to predict, but the chance is real. Whatever it is, prices will continue to rise. The only solution is to fuel our local economy and invest in it.”
“Supply problems are likely to last until the middle of next year”: our money expert on current inflation (+)
“The only certainty that bonds offer now is the certainty of losing purchasing power”: our money experts provide stock market advice for 2022 (+)
“See a stock market correction as a bargain period, but buy shares very gradually”: Paul d’Hoore gives advice after a blood-red Monday on the stock market (+)
Free unlimited access to Showbytes? Which can!
Log in or create an account and never miss a thing from the stars.