Germany Is Getting A Distinct Feeling Of Deja Vu About Its Exploding Inflation

Say what you will about Germans, they have a distinct hate-hate relationship with hyperinflation, having been one of the very few “developed” nations to experience it in the not too distant past courtesy of Rudy von Havenstein’s application of “Modern Money Theory” to the Weimar Republic back in 1921 with less than stellar results. Well, Germany may soon enjoy double (and triple) digit price gains quite soon.

When asked by Frankfurter Allgemeine Zeitung about the possibility of double-digit inflation rates, Volker Wieland, a member of the German government’s council of economic advisers said that “it can’t be ruled out, especially if Russia stops oil and gas deliveries or if there’s a total import embargo, then I think inflation rates in this magnitude would be conceivable.”

Now if only Germany hadn’t allowed its energy policy to be determined by a petulant, publicity obsessed Swedish teenager, and if the country actually had some strategic views on how to maintain at least some energy independence, none of this would have happened (as we warned last summer in “Will ESG Trigger Energy Hyperinflation“). Unfortunately that wasn’t the case.

Surprisingly, Wieland didn’t fully lay the blame for Germany’s upcoming hyperinflation on Putin sand said that the “future path of inflation is very strongly linked to what the ECB does.” adding that “personally, I would be in favor of acting more quickly and of raising interest rates briskly.” Which is a great idea, if only the ECB didn’t have a rather catastrophic track record of hiking rates into an economic debacle and sparking historic sovereign debt crises in the process.

ECB sarcasm aside – which is not easy as one can never be sarcastic enough about the world’s most clueless ‘buy only’ hedge fund central bank – the reason why the topic of double-digit German inflation emerged is because earlier today analysts were shocked (again) when German headline inflation printed 7.6%yoy in March, sharply above consensus expectations of 6.8%, and up from 5.5% in December.

Here are some more details courtesy of Goldman:
◾1. German headline inflation was 7.6% yoy in March, sharply above consensus expectations, and up from 5.5%yoy in December. The press release highlights the rise in energy prices following the outbreak of the war in Ukraine and supply chain bottlenecks as driving forces behind the high March print. According to the release, an equivalently high inflation rate was last recorded in the autumn of 1981 in Germany.
◾2. With the German and Spanish releases in hand, we update our tracking estimate of Friday’s flash March Euro area HICP inflation (Exhibit 1). We upgrade our headline inflation forecast to 7.72%yoy, from 7.56%yoy previously, signalling sizable upside risk to consensus expectations. We leave our core inflation tracking estimate unchanged at 3.12%yoy. With a few more days of energy price data, we also increase our Italian headline HICP inflation forecast to 7.9%yoy (from 7.4%yoy previously) and lower our French headline inflation forecast to 6.1%yoy (from 6.3%yoy previously).

Finally, for those who think that double digit inflation is in the bag but triple digit is clearly hyperexageration, here is what German PPI looks like: in February it hit 25.9%… and that was before the Russian invasion really pushed commodity prices into overdrive.

So how long before German prices double over the past year (i.e., 100%+) and how long after that before they are passed on to consumers? And to think that at least Germans were smart enough to recognize those clueless politicians who would sell them down the river for just a few minutes in the global virtue signaling limelight with the likes of John Kerry, even if the outcome was the second coming of Weimar hyperinflation…

They (and here I am talking about the leadership of every nation on our planet) never learn.

We all have learned about nature’s laws such as Newton’s laws of motion or Gravity or the limit of speed and so on but politicians never seem to learn the laws of human nature and market forces.

When ever governments get involved in “fixing” anything they invariably make it worse because humans will find a way to work around the “fix”.

The price of any product is based on what someone is willing to take for the product. Basic supply and demand. When supply is low but demand is high, the price goes up. The opposite is also true. The price seldom relates to the intrinsic value of the product.

The only real fix is to allow the market place to work unmolested.

(As with any subject this is just a short note from my point of view, I am sure the subject is much more complicated and others can expand on what I missed, or why I am wrong).

There is also the matter of TRUST between those that govern and those that are governed, when the people no longer trust their government bad things happen.

“We all have learned about nature’s laws such as Newton’s laws of motion or Gravity or the limit of speed and so on but politicians never seem to learn the laws of human nature and market forces.”

The Gods of the Copybook Headings

As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: “Stick to the Devil you know.”

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: “The Wages of Sin is Death.”

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

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