André Franzmann


    or months now, we have been
    feeling the effects of inflation
    in almost all areas of life –
whether at the petrol station, in the supermarket or on bills that flutter into our homes. Compared to the previous year, prices have increased across the board, namely by almost eight percent in May 2022 alone compared to the previous year. At least that is the figure for Germany. The situation is similar in other European countries and in the USA.

Economists disagree on whether inflation will continue or come to a standstill. Only a few experts currently expect a decline.

While the term “inflation” has dominated the headlines for some time, in recent weeks we have also heard more and more the term “stagflation” as a newly described upcoming danger. What is stagflation, what factors are responsible for it and should we fear that the stagflation scenario will be with us for the next few years?

Stagflation describes a condition in which inflation is joined by economic stagnation, i.e. when prices rise, economic output stagnates or even declines.

As a further consequence, there is usually also a negative impact on asset classes such as real estate, shares and bonds, which lose value.

Stagflation is usually triggered by supply shocks in which one or more factors of production are not available or are only available to a lesser extent, e.g. oil in the oil crisis of the 1970s. At that time, OPEC (Organisation of Petroleum Exporting Countries) decided for political reasons to significantly reduce production volumes, so that the market price more than doubled within a very short time and a severe economic crisis was the result.

Today we see two main factors leading us straight into stagflation: the Coronavirus pandemic and the Ukraine war.

The Coronavirus pandemic was thought to have been overcome several times, but the consequences of disrupted global supply chains continue. China, in particular, seems to have failed with its zero-covid strategy. Due to ever new lockdowns, ships are jammed and goods pile up at the loading cranes of Chinese ports to ever new record heights. Worldwide, there is a shortage of important primary products, so that companies cannot produce to the desired extent.
Demand thus clearly exceeds supply, leading to rising prices. Political measures cannot provide any relief here. It is rather the companies that are called upon to find alternative procurement channels, which is not always possible.

The second cause is the Ukraine war, which is leading to massively rising energy costs and thus significantly increasing production costs. Here, too, the state is only able to help to a limited extent, because even subsidies can only cushion part of it temporarily and must be recouped later through tax increases or other measures.

In order to assess whether we are threatened with stagflation and whether this is perhaps of a long-term nature, it is advisable to take a look at the individual causes and problem areas. The less likely it seems that the individual problems will be solved in the short term, the greater the danger of stagflation in the longer term.

Rising energy prices

The independence from Russian oil and gas, which Germany was able to purchase comparatively cheaply in the past and which had its share in the economic growth of the past years, must be bought at a high price. In addition to a very costly logistics infrastructure, e.g. for liquefied gas terminals and investments in new energies, the higher procurement prices of new energy suppliers are likely to mean that we will have to assume significantly higher energy prices in the long term.

Problems with material procurement

Whether due to the Ukraine war, which is leading to a lack of supplies from Russia and Ukraine that have to be substituted at significantly higher costs, or a lack of material due to production interruptions in China, it all throws more and more spanner in the works of German production.

Disrupted logistics chains

Due to recurring coronavirus lockdowns, especially in the Chinese ports, the global supply chains are severely disrupted. No one can say when the next virus variant or the next wave will sweep through the country and paralyse logistics again. There is currently no sign of a renunciation of the Chinese government’s zero-covide strategy.

Lower demand from other countries

The increasing protection and isolation of countries like the USA and China are endangering the economy of Germany, the world’s leading exporter, to an as yet unforeseeable extent. With 1,375 billion euros and an export quota of 70 percent, Germany is more dependent on the demand of its most important trading partners than any other country. In 2021, for example, the USA was the most important buyer of German products with 122 billion euros, followed by China with 103 billion euros. Russia is Germany’s 14th most important trading partner with 27 billion euros.

Wage increases

Strong inflation ensures that workers and trade unions will demand significant increases in the next wage and salary rounds. This will increase the cost of human labour, which in turn will lead to higher prices. To make matters worse, productivity increases seem to have been largely exhausted. There is a danger of the dreaded wage-price spiral.


Since 1972, the death rate in Germany has been higher than the birth rate. At the same time, emigration figures and life expectancy are rising. Despite increasing immigration, we are threatened with a decline in the labour force potential. At the same time, there are more and more people of retirement age who want to enjoy their retirement and demand goods and services.


Finally, it is not yet foreseeable what consequences further mutations and coronavirus waves will have on the global economy, the interrelationships of which have already been described above.

If we consider all these factors in combination, the result is a mixed situation that makes the outlook for the future rather gloomy. It seems likely that inflation will be with us for a very long time and that there is also a danger of stagflation lasting for years.

But there are also rays of hope: a calming of the coronavirus situation and the Ukraine conflict could have a positive effect, as could have the effect of rising interest rates, which would weaken consumption, so that demand would decline and the price increase would stop. However, this could also reduce companies’ willingness to invest and productivity. Another positive signal is that the labour market situation is not comparable to that of the oil crisis for example. The unemployment rate is low and the shortage of skilled workers is high. The consequences for the labour market could therefore be less than would be assumed in the case of stagflation.

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