Mr. Sturm, when will inflation fall?

SonntagsBlick: Mr. Sturm, war is raging in Europe, the nuclear threat is real. New power blocs are forming with Russia, China, India and Iran. Added climate crisis, financial crisis, banking crisis, currency crisis and corona crisis. The world has lost its mind. Do you join?

Jan Egbert Sturm: The world may not be crazy, but a lot has changed in ways we never thought possible. I observe a strong polarization among the nations. It leads pretty quickly to declaring “others” insane. But I hope we haven’t gone completely crazy yet.

You are optimistic!
The challenge today is that we don’t over-interpret big events. Remember the closure in the first wave of the pandemic, when almost everything stopped?

Very true.
This was a turning point. It is unlikely that this will happen to exactly the same extent. We are much better prepared today. Therefore, such violent experiences should not determine how we look into the future.

In terms of the global economy, I’m a little more nervous than you.
In fact, many things are different today. We live in a politically and economically unstable world. Putin turned off the gas tap. This showed us painfully how difficult it is to find a new one in such a short time. Now prices are rising, we need to save, the eurozone and the US are in recession. I am still confident about Switzerland.

The economist says energy prices and health insurance premiums are punching a hole in the budgets of medium-sized families.
Of course, this winter will not be a normal winter. The Swiss economy will stall. But compared to a shutdown, these are definitely better prospects. Regarding the energy crisis, this winter is truly a turning point. We now know that fossil fuels have no future. This should significantly increase the speed of the green turn. Now we are paying a very high price for this in a very short time. This leads to welfare losses. And something else…

Yes please?
In the second phase of the epidemic, large quantities of goods were consumed as services were not available. Instead of a nice meal at the restaurant, we were welcoming furniture and computers. If everyone does this at the same time, there will inevitably be supply bottlenecks. World trade in industrial goods has grown strongly in recent years.

At the same time, companies now have to choose between doing business in the USA and Europe on the one hand, and Russia and China on the other. Fear of globalization is spreading.
Inhibition actually occurs to a significant degree. This increases political risks for companies and encourages them to reorient themselves, but it does not mean that there will be less international trade in the future – it will only happen partially between a smaller group of countries. Of course, this comes with risks. Macroeconomically, it is the opposite of diversification and partially leads to divergence from specialisation. This means that a key element of our current well-being has been lost.

For a long time the motto of the West was: peace through trade. The person feels that the equation is no longer true.
still true! Economic cooperation remains the relevant variable. Putin is also aware that his country is dependent on other nations. A world where everyone is isolated is unthinkable. This piece of furniture (it hits the table) was never 100% made in Switzerland. Not all of us can wear our own watches on our wrists. We have become so specialized and outsourced because it brings us efficiency gains and therefore progress. But we have to blame ourselves for one thing.

So what?
We didn’t think about whether we were durable or not. We are slowly realizing that a little less efficiency and more flexibility have a balancing effect on the economy. We see this in supply chains. Companies are expanding their networks, diversifying their logistics, thereby reducing risk should a supplier fail.

How resilient is our country?
Resilience comes from stable political institutions, a healthy society, and a thriving economy. Switzerland can combine them all. First of all, we produce high-quality niche products in the luxury segment. Service quality is correct. We are also reliable partners.

However, this does not protect us from inflation. When will he return?
Unfortunately not that fast. I expect inflation rates to climb up to 3.5 percent by spring due to rising electricity prices. After that, the situation should calm down. It depends on a lot of energy sources.

Under what conditions might the situation worsen again?
If Putin continues to turn on the gas tap and not enough electricity is produced on European soil, inflation is likely to continue to put pressure on our economy. Much also depends on the maintenance work at the nuclear power plants in France. They currently only produce a fraction of what they can really do.

In the USA, the increase in inflation slowed down. Is this a trend reversal?
While it is still possible for US inflation to recover somewhat in the coming months, the underlying trend is really in the right direction right now, namely down.

Are central banks moving fast enough with the rise in key interest rates?
As fast as possible. We don’t notice much at the moment as rate hikes only have a lagged effect on inflation. But that hasn’t come yet.

Our most important trading partner, Germany, is entering recession. What does this mean for Switzerland?
Less trade. When the German auto industry coughs, local suppliers also catch a cold. At the same time, Swiss companies are taking advantage of the turmoil in the automotive industry as they supply high-end products for electric vehicles, not diesel engines. Companies that produce capital goods, such as the machinery industry, will suffer a little more.

Inflation has resulted in real wage losses of 1.8 percent this year, the highest since 1942. Are we going to earn less and less now?
There is a steep drop in real wages because we do not know how high inflation will be. It makes sense that this will not be taken into account in the 2021 wage negotiations. However, real wages have increased in recent years. In the medium term, this situation will improve.