The producer price index in Europe fell for the fifth consecutive month, which is good news for inflation. “It fits very well in the chain of forces that come together to reduce inflation considerably,” said macroeconomist Edin Mujagic.
The decline in the producer price index is linked to the decline in energy prices. But even excluding it, the index is 0.4% lower. “Even if you just look at costs other than energy, there’s a 0.4% decrease,” he explains. “In addition, the producer price index fell year-on-year for the first time since the end of 2020.”
“Even if you just look at costs beyond energy, there is a decrease of 0.4%”
At first glance, everything seems fine “under the hood,” Mujagic says, but he points out that it’s worth going very deep under that hood. “And the deeper you look, the less reason to celebrate,” he continues. ‘One word plays a crucial role: productivity. And especially the increase of it in humans. This is a major determinant of inflation.’
Wage
Mujagic argues that if wages rise faster than productivity growth, operating costs will rise. With consequent structural upward pressure on inflation. “And if you look at productivity gains in the eurozone, it’s just under one percent,” Mujagic says. “And we all know that wages are going up six, seven or more percent.”
And as long as the increase in wages outpaces the increase in production, those companies experience cost increases, and those costs will be passed on in the form of inflation, Mujagic explains.
Too expensive
The solution? Automation, robotization and digitization. People are getting too expensive. Mujagic: ‘This is already happening. Companies now know – unlike previous cases in recent decades – that labor is only getting scarcer. So if they don’t invest in automation now, when will they?’
Mujagic expects this to increase in the coming years, but stresses that one needs to realize that quite a bit of time can pass between decision and implementation. “You don’t just do it for a while,” he says. In the long run it will undoubtedly have a favorable effect on inflation, but in the short run it will have an inflationary effect.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
