Parallels to the 1970s: what the history of inflation teaches


Status: 09/18/2022 12:52 p.m

Prices in Germany are rising rapidly – like half a century ago. Where are the parallels between today’s inflation and the inflation of yesteryear? Us what is different now?

By Steffen Clement and Daniel Hoh, Mr

“You should pay higher heating fees?” the TV reporter asks the resident at the entrance to the house, who then pulls a letter out of her pocket: “We’ve been paying 40 marks a month and will be 80 marks in the future. That’s twice as much.” Only the currency reveals that it is a TV report from the ARD-Archive acts. This classification could come from Federal Chancellor Olaf Scholz: “The energy crisis is affecting all countries in the western world.” But it is the words of the former chancellor Willy Brandt, also SPD, with which he promotes the “car-free Sunday” in November 1973.

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Several parallels

The parallels between the 1970s and today are obvious to economics professor Peter Tillmann from the University of Giessen. “Back then, the price of oil quadrupled; now the sharp rise in prices, especially for gas.” As then, there is this price shock all over the world: the next parallel.

Eberhard Flammer can still remember the oil crisis and the price explosion at the time. He was 20 years old at the time and was just completing an apprenticeship at a bank. The price at the pump has doubled to more than one mark within a few days. The price for a liter of heating oil, he rummaged in his memory, rose from around ten pfennigs to 60 pfennigs. Those who only had a little oil in the tank turned off the heating.

At the time, society reacted with defiance: “The oil idols in the Middle East became the enemy. Let them eat and drink their oil, we won’t take it from them anymore,” he says, describing the mood at the time. The next few weeks and months will show whether German society is reacting in a similar way.

Learning effect at central banks

At the time, rising energy prices pushed the inflation rate to new record highs. In December 1973 the price increase was 7.9 percent – exactly the same as in the previous month. Then as now, there is a consensus in economics: when prices rise sharply, it is the central task and power of a central bank to lower the rate of inflation through higher interest rates. Opinions have always differed only on the question of the right time and the amount of the interest rate hikes.

Expert Tillmann sees an advantage for the present in historical experience. At that time, it was shown in the USA and Europe that too hesitant action would lead to even greater problems. “At least the US central bank has learned its lesson,” says Tillmann. He demands decisive action from the European Central Bank (ECB). Last week, the ECB decided on the largest interest rate hike in its history and raised the key interest rate by 0.75 percentage points to 1.25 percent.

Will mass unemployment return?

However, rising interest rates are poison for economic development and can drive up the unemployment rate. This is exactly what happened around 50 years ago, when the number of unemployed exploded from 273,000 (1973) to 1.1 million (1975) in a very short time.

This is where the biggest difference lies: Instead of downsizing, demographic change and a shortage of skilled workers are now the big issues. The best example of this is the former bank apprentice Eberhard Flammer, who has been managing a supplier for the automotive industry with 1,300 employees worldwide for decades. The medium-sized company says that he has put a lot of effort into training and further education in recent years. “We would be powdered with the staple bag,” says company boss Flammer, “if we bring in uncertainty.”

The return of mass unemployment seems impossible – a reassuring realization in these times. But is inflation here to stay? “The crisis, which we are just beginning, should not be downplayed.” Olaf Scholz could probably repeat Willy Brandt’s assessment verbatim today.

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