Inflation in May was 7.8%, the fastest rate of price increase since 1984.
Statistics Sweden informed us that when inflation was measured then, the “basket” of goods and services included black and white TVs, telegrams and vinyl LPs.
Another interesting nugget of gold was the fact that petrol and diesel accounted for just over 6% of the basket as early as 1984, while it now accounts for 3.71%.
In other words, we now spend proportionally less on fuel than we did in the 80s.
A small consolation now that you pay 26% more for your petrol compared to last year and 41.6% for diesel.
But if mullet and Duran Duran are not your thing, you can choose to compare our current situation with the 1970s.
That is what the World Bank did this week when it aroused the specter of stagflation. This is when inflation rises and economies enter a recession.
In a reportwarned of the particular threat facing emerging markets and developing economies.
The OECD added the sharp warning of famine in those parts of the world that are particularly dependent on grain supplies from Russia and Ukraine. Financial overview.
Ireland’s inflation history saw prices peak at an annual average of 21% in 1975 and again at just over 20% in 1981.
Both inflation increases followed the first and second global oil shocks.
The year referred to this week, 1984, had an average inflation rate of 8.6%. The rate of inflation had halved within two years, but yes, you guessed it, at the cost of a deep recession and all that came with it in terms of emigration and the absence of investment in public services.
At the moment, the story does not look like it is repeating itself, but it rhymes like the finest Spinal Tap.
The Irish economy recovered spectacularly in the first three months of the year, growing by almost 11%, although the domestic economy contracted by 1%.
The ECB has withdrawn its growth forecasts, but it still expects robust growth in the euro area this year of 2.8%.
Unemployment is at historic lows and the European Central Bank has a mandate to bring down inflation.
This is in contrast to the 1970s when many governments across Europe believed that they could get through the inflation cycle without taking measures such as raising interest rates to slow them down.
The second factor – and we do not know the answer to this yet – is what happens to wages.
I am grateful to Dr Ciarán Casey for referring on Twitter to a fascinating study carried out by the CSO on the history of industrial wages in Ireland (The average industrial wage and the Irish economy).
It shows that during the 1970s, nominal wages rose annually at an average rate of just over 18%. Even after inflation took its toll, real wages rose by an average of 4.8%, which is described as the largest increase in purchasing power since records were set in the 1930s.
The final hangover for this spectacular wage-price spiral was reaped in the recession of the 1980s when real wages rose by only 0.9%, which was the lowest annual wage growth rate ever.
Wages are already rising in many private sectors in Ireland and public sector wage negotiations are entering a new, more intense phase next week. But they are unlikely to settle for anything even close to what we saw in the 1970s.
The last wildcard is the original match that triggered Europe’s inflation spiral: the war in Ukraine. The world has found different ways since the oil shocks of the 1970s to circumvent and adapt to the effects of wars in the Middle East.
It also changed its energy use by adapting technology to become more fuel efficient. It is hoped that the green transition will make the same progress.
Russia’s invasion of Ukraine is different and not just because of the proliferation of war-torn commodities and the structural dependence of large parts of Europe on Russian gas.
The President of the ECB, Christine Lagarde, made an interesting comment at the end of this week’s press conference following the Governing Council. By congratulating the Governor of the Dutch central bank, Klaas Knot, on hosting this month’s meeting, she said that “geography is important”.
It really does when there is a full-scale war on the doorstep.
That story is far from written yet.
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