In La Tribune 14/02/2022
For the last two years we have been experiencing inflation, a loss of purchasing power of our currency which is reflected in a general and lasting increase in prices.
In a globalization that is sick of Covid, this increase was initially subject to the drop in production being greater than the drop in consumption, and then it was amplified in a second phase, when the strong recovery in production came up against the monstrous congestion of the world’s logistic chains.
Decoupled inflation
As a result, global inflation soared, but in a decoupled fashion.
In the producing countries, at the start of the supply chains, it remained low: 2.5% in China and negative in Japan. But it was high among importers: 7% in the United States, 5% in Europe and, with remarkable variations, 3.1% in Germany, but 1.6% in France.
Low in Asia, high in the West, inflation has decoupled because for the first time in a very long time our loss of sovereignty and the bad dependencies contained in our Strategic Solidarities have had an impact on inflation.
Now some are predicting that global inflation will continue to rise. They make the mistake of not recognizing that 2021 has accumulated all the economic risks, and that the indicators are improving like the flow of electronic chips. The impact of possible wars in Ukraine or Taiwan, which no one hopes for, are not measured, otherwise the forecasts would indeed be in double digits, because what about Russian exports of oil, natural gas and metals and Ukrainian agricultural products?
Conversely, others calculate that covidian inflation was only transitory and disappears in favor of a slow and homogeneous deflation as global logistics normalize. This is also short-sighted, since Covid and the COPs have changed the world in two ways.
Sovereignty and inflation
In the next few years, Asia will remain the front line of industry, with the electric car for example. Barring a setback, such as pork meat prices in China, the East should continue to experience moderate prices, as soon as electric power is back under control.
Thanks to the European Community, under the impetus of Thierry Breton, Europe has interesting industrial plans to strengthen its structural sovereignty and weaken the negative impacts of globalization dependencies. As indicated below, these efforts could be supported by a return to independent electricity production. Europe would then return to a long-term deflationary sovereignty model.
For their part, the United States would like to have some Bretons at their head. They are the best at keeping the hard heads in check, and there are many in the Senate who are hostile to Joe Biden’s « build back better » road map. This opposition is fatal to the idea of increased U.S. sovereignty and transient covidian inflation, but favorable to structural and sustainable price increases. As a result, the FED will raise interest rates more than the ECB will. Moreover, gold prices have understood this, they are always attentive not to the speeches of Chinese or European central banks, but to those of the chairman’s FED.
The result of this first phase based on the link between sovereignty and inflation indicates that the inflationary decoupling of 2020/2021 between producers and consumers, between sovereign Asia and the dependent West, will now move towards a new inflationary disunity, but this time between the dependent United States and more sovereign Europe and Asia. Predicting European inflation as in the past in the light of Washington will be a mistake; Asia and Europe in search of similar and probably competing sovereignties should experience concordant inflationary trajectories.
Environment and inflation
The second element impacting inflation and which has changed over the last two years concerns the COPs and the impact of the environment on agricultural, energy and mining costs.
After the inflationary tunnel of Covid and organic farming, grains prices will adjust downwards, as always thanks to new plantings; however, with the threat of new environmental constraints and climate change on production costs. Livestock farming, which is less seasonal, is already experiencing cruel price adjustments, as the current demonstrations show in France. But it is regrettable that the French public authorities have not stopped the numerous suicides of farmers by daring to rebuild agricultural financial sovereignty.
Nuclear power and deflation
As a result of various policies, we have lost our electrical sovereignty. The foreseeable environmental, geopolitical and operational constraints are lowering the volume of cheap fossil fuels available and the current oil supercycle forecasts oil at $125 per barrel. At the same time, the increase in non-drivable renewable electricity is further eroding our electrical sovereignty and increasing inflation, as shown by the natural gas episode this winter.
However, France and Europe have a solution. Cheap, sovereign, controllable electricity produced by burning the waste from today’s nuclear power plants. Because we have this stockpile on our soil and it eliminates the need for uranium mining for the next 5,000 and 10,000 years, it is the free fuel for tomorrow’s nuclear power. What are we waiting for to consume it?
Fessenheim, Astrid program, small modular reactors, EPRs and tomorrow the fast neutron reactors, French electrical sovereignty cannot be established around EDF’s electricians in a zigzagging political inconstancy linked to electoral hype . As a philosopher of political maneuvering once wrote: « The lie is often more plausible, more tempting to reason than reality, for the lie has the great advantage of knowing in advance what the public wishes to hear or expects to hear. »
Innovation and deflation
For strategic reasons, heavy industry is consuming more metals than in the past: our world is rapidly shifting from a dependence on hydrocarbons to a dependence on metals needed for production, transportation, storage, and electrical consumption in generators, connectors, chargers, batteries, and finally motors. Logically, this industrial demand is driving metal prices upwards, but without any historical excess to date.
However, true to the Phillips curve, anticipated inflation is lurking. Politics is inflationary, as demonstrated by the Chilean constitutional debate on taxing or nationalizing copper or lithium mines. Environmental standards also increase mining and metallurgical costs: if non-drivable renewable electricity increases in the mines, the marginal cost increases; if hydrogen allows greener steel to be produced, it costs more. Moreover, at the current rate of mine production, it will take 15 years before a new balance between supply and demand for metals lowers their prices through new production and recycling.
But, stronger than the Phillips curve, industrial substitution is deflationary because it reduces consumption. Thus, the costs of electric vehicles will fall, because progress has already made it possible to eliminate cobalt and nickel in batteries and rare earths from motors. The « rare metals » were indeed an anti-electric car fake news!
Between these opposing forces, Europe can regain metallurgical and mining sovereignty to the tune of about 50%, which is enormous compared to the current 5%,
All in all, the renewal of European industrial sovereignty and a positive management of agriculture, energy and metals allow us to bet that European inflation will not exceed an average of 2.5% for the next 50 years.