Mujagic argues that inflation is actually a reflection of the fact that people have wanted to buy everything in a short period of time, “whereas what can be offered actually lags behind demand.” “As a result, supply and demand become unbalanced and inflation follows.”
“People just couldn’t spend money because of the lockdowns”
And the reason consumers – both in Europe and the US – are able to spend so much, according to Mujagic, is that people accumulated “forced savings” in 2020 and 2021. “People simply couldn’t spend money at cause of blockages. On top of that came all kinds of support from governments, so the money was piling up.”
Ditch
According to Mujagic, there was a veritable “ditch of extra savings,” which was spent en masse when lockdowns were lifted. “Then people could go to the shops again, and they did,” he says. And because of that spending, consumers’ savings have slowly but surely dwindled.
Research by the US central bank, the Federal Reserve, even shows that all forced savings have been exhausted. For Europe, the Fed has calculated that savings amount to between 3 and 5 percent of GDP. An important observation, says Mujagic. “First of all, he explains why the US economy has been doing much better than the European economy since the summer of last year,” he explains. “They spent it before us.”
Stay behind
That doesn’t mean Americans aren’t spending anymore because they’ve depleted their savings reserves, Mujagic points out. On the contrary. “They only have wage income and inflation is going down too, all of that helps,” she continues. ‘Wage trends are positive. But this was such a huge supply of extra cash that if you spend it in a short period of time, it will drive economic growth and inflation.’
Mujagic also wouldn’t be surprised if inflation in the US falls faster than in Europe in the foreseeable future, assuming Europe still has a “savings reserve”. “The extra engine stalled,” concludes Mujagic.