Could prices end up going down? The answer is NO: here’s why
With the crisis, the prices of most products have increased this year. Hence this legitimate question: what will happen next year? Will the prices eventually go down? The answer is no. Let’s see why.
In recent months, prices have steadily increased. Inflation soared to 12%. Products and services therefore cost more. Faced with this observation, it is normal to ask the question: could prices go down and return to their pre-crisis level?
If the citizens we interview hope that prices will come down, previous crises teach us the opposite. To understand, let’s take a chart of the overall price movement.
The last period of very high inflation that we experienced dates back to 1979. This was the year of the second oil shock. This event led to a sharp increase in prices. This was not followed by a decrease, quite the contrary. On the graph, we see that the curve is fairly constant. And when prices go up, they almost never come down.
We will come back around a trend of 2%
We interview an economist. He estimates that inflation, which represents the increase in prices, averages 2% each year. Even when it is low, prices continue to rise. “We can clearly see that even if there are periods when there is a strong increase, we are not going to return to something flat. We will come back around a trend of 2%. So it is the price slope that will readjust, but it will not fall“, explains Bertrand Candelon.
The persistence of inflation
When a crisis occurs, like today, it will have a long-term impact. This phenomenon is called inflation persistence. The increase is reflected in all sectors of the economy. “The increase in energy prices will have repercussions, for example on wages, on taxes, etc. This means that, little by little, an indirect transmission takes hold in all sectors of the economy, which means that even when the initial shock disappears, inflation will remain“, specifies Bertrand Candelon.
Manufacturers invested in machines that were much more expensive
The prices of gas or electricity could all the same decrease if the energy context stabilizes. For the rest of the prices, however, there will be no reduction. In mass distribution, for example, when a product reaches an amount, it is very rare that it goes back. “It is not because the prices of raw materials will go down that the prices of finished products in stores will go down. Because manufacturers have, during these years of inflation, invested in machines that were much more expensive. So they’re going to have to pass those 12 to 24 month highs through the years to come.“, explains Pierre-Alexandre Billiet, retail specialist at Gondola magazine.
A recession could lead to a general fall in prices, but it would cause a slowdown in the economy, a loss of purchasing power and an increase in inequality.
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