‘The consumer is the common denominator’

‘The consumer is the common denominator’

EconomyJul 11 ​​23 14:46Edited Jul 11 ​​’23 3:01 PMAuthor: Remy Cook

The consumer is the common denominator on issues such as the duration of high inflation and the possible imminent recession. So says macroeconomist Edin Mojacic. “And then it’s mainly about what we as consumers spend,” he says.

The consumer is the common denominator when it comes to questions such as how long high inflation will last, or whether a recession will indeed follow. So says macroeconomist Edin Mojacic. “And then it’s mainly about what we as consumers spend,” he says. (Peter Hills )

Mojácic argues that inflation is actually a reflection of the fact that people wanted to buy everything in a short period of time, “while what could be supplied actually lags behind demand.” As a result, supply and demand become unbalanced, and inflation follows.

People simply couldn’t spend money because of the lockdown.

Edin Mojacic, Macroeconomist

The reason consumers — both in Europe and the United States — are able to spend so much, according to Mujagic, is because people built ‘forced savings’ in 2020 and 2021. People simply couldn’t spend money because of the lockdowns. On top of that, all kinds of support came from governments, so the money was piling up.

get rid of

According to Mojek, there was a “real moat in extra savings”, which were spent en masse when the lockdown was lifted. “Then people could go to stores again, and they did,” he says. Because of this spending, consumers’ savings are slowly but surely diminishing.

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Research by the US central bank, the Federal Reserve, shows that all forced savings are exhausted. For Europe, the Fed has calculated that there is an amount left in terms of savings between 3 and 5 percent of GDP. An important note, says Mojacic. “First of all, it explains why the US economy has done so much better than the European economy since the summer of last year,” he explains. “They cashed it out before we did.”

stay behind

Mojácic stresses that this does not mean that Americans no longer spend money because they have exhausted their savings reserves. on the contrary. He continues, “They just have wage income and inflation is coming down too, it all helps.” Wage development is positive. But this was such a big show of extra money that if you spend it in a short period of time, it will drive up economic growth and inflation.

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Mojácic also wouldn’t be surprised if inflation falls faster in the US than in Europe in the near future, assuming Europe still has a “supply of savings”. “The extra drive there is off,” Mojachek concludes.

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