Lady having a hard time computing her expenses


Inflation is at its highest level in decades. Experts agree that poor people in particular suffer from this. With the rising price of goods and services, you really need an a budgeting application to help you get your already tight budget even more organized. But what can politicians do about it: should they try to lower the inflation rate, or should they relieve the poor?

A group of young men comes out of a supermarket in the north of Munich. They are all in training, they say. One says: “Great. I just went shopping as normal and then I looked at the bill, it was 88 euros, and I tell myself that a while ago it would have been 50.” Another man, in his early 60s, with a white braid, stands next to the entrance: “That worries me a bit because I just don’t know what’s going to happen next.”

Everyone feels the inflation – poor people especially

Inflation was nearly 8 percent in May, arguably the highest this year in decades. People feel this clearly, poor people, in particular, are affected. And what are politicians doing about it? “The state cannot compensate for everything for everyone,” said Minister of Labor Hubertus Heil (SPD) in the magazine “Stern” this week about inflation. In fact, the experts here are arguing about this fundamental question: can politicians themselves mitigate inflation or just cushion the effects?

No direct impact on import prices

Monika Schnitzer is an economist at the LMU in Munich and belongs to the council of experts known as the Economic Wise Men. She believes that politicians can do little to address the main drivers of inflation:

“The government actually has no direct influence on the supply problems, but of course, it can now, especially as far as energy supply is concerned, try to ensure that there are alternatives to Russian energy supplies. They are trying to do that on a large scale. But all of that nevertheless means that these energy supplies then have to be purchased at a high cost.” Monika Schnitzer, an economist at the LMU in Munich.

According to Schnitzer, what the government can do is distribute the burden of inflation more fairly: “As a country, we have become poorer. Of course, someone has to bear that.”


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Warning of the wage-price spiral

But Schnitzer warns against raising wages in line with inflation. This could lead to a so-called wage-price spiral:

“What is particularly important at the moment is that we ensure that this inflation does not take on a life of its own. In view of the increased prices, wages are being raised, which are supposed to compensate for this price increase – which in turn means higher costs for companies, which in turn lead to higher costs goods prices in the future.” Monika Schnitzer, economist at the LMU in Munich
Dierk Hirschel does not believe that the increase in wages will increase inflation. He is chief economist for the Verdi union: “This is a sham debate. It has nothing to do with reality.”

Corporate profit margins as a driver of inflation

Hirschel sees the profit margins of corporations more as a driver of inflation. Because they benefit from the current crises: In 2021, the Dax companies earned more than ever before. Instead of a wage-price spiral, the Verdi economist Hirschel warns of a profit-price spiral.

“The same phenomenon everywhere, the general price increase is used to increase profit margins accordingly. In the USA there is currently a study that says that 50 percent of US inflation is due to price gouging by large companies.” Dierk Hirschel, chief economist at the Verdi trade union

An example where this is particularly visible in Germany is the tank discount, says Hirschel. He is certain that politicians can actually take action against inflation here. You can tax the so-called excess profit and thus prevent the corporations from getting rich and driving inflation. He, therefore, supports the proposal by Federal Economics Minister Robert Habeck (Greens) to introduce an excess profit tax. But how much that would hold back inflation and whether such a tax can be implemented at all is – once again – a matter of debate.