For a long time, central banks have argued that rising inflation is only temporary. This opinion became an argument in favor of keeping interest rates at a record low and a wait and see attitude before tightening monetary policy. Now, almost every day, there is new terrifying news about the rise in consumer prices.
Soaring energy prices and shortages of many intermediate products in manufacturing are now also driving the cost of everyday goods skyrocketing. We recently saw double-digit percentage increases in prices in a very short time, for example, for food, energy and electronics.
Yet the perceived and actual price explosion does not seem to be adequately reflected in official inflation figures, despite significant increases in consumer price indices. And the price of gold is also not behaving in the way that many expect from it in the current environment.
In an interview with the Austrian program Fellner! LIVE Rudolf Brenner, Managing Director of Philoro Edelmetalle GmbH, explains why realistically presented official inflation rates are not in the interest of monetary policymakers. “Then they would have to raise interest rates. And if interest rates are raised, they will not be able to cut costs. And that's what they're doing now, ”says Brenner.
There is logic in this: the state does not need to pay anything for borrowing (absence or negative interest on government bonds), but the real cost of existing debt decreases with increasing inflation (currency devaluation). “Central bankers have been looking forward to this scenario. You just need to hope that this process does not get out of control. Politicians also wanted it because inflation within manageable limits could be sold as growth, ”says Brenner. After all, inflation also contributes to the growth of gross domestic product (GDP).
But why is the price of gold not growing, although this asset should receive support from high inflation? The Philoro director emphasizes that it is mainly inflationary expectations that play a role in the dynamics of gold. In his opinion, the anticipated expectation of only temporary inflation, as well as investments in stocks, which are still in high demand, slow down the possible rise in the price of gold. “Inflationary expectations will rise and this will also drive up the price of gold,” Brenner said. Strongly negative real interest rates and (announced) gold purchases by central banks (eg Poland) will also contribute to this in the long run.