Professor Popović:”No danger of hyperinflation”

„Inflation is just like elevated body temperature, and because of this, the economy needs therapy. What would be aspirin to a sick man, for the economy, that is the reduction of the money supply that boosts inflation. This is the cure. Since the excess money in circulation is the driver of inflation, central banks around the world seek to increase interest rates and thus make money more expensive and withdraw it from circulation. The goal is to reduce consumption and thereby reduce inflation“, says Dr Danica Popović, retired professor of the University of Belgrade’s Faculty of Economics.

 In terms of central banks raising benchmark interest rates, Professor Popović says that „that will happen until the „body temperature“ is reduced to normal, so to speak. More money was printed than the rate of economic growth allowed. When economic growth and money printing are in balance, there is no inflation. Now central banks are trying to take excess money out of the system by making it more expensive. This operation is painful because in this way economic growth, employment and living standard are reduced – let’s say that everyone’s wages are reduced in real terms and the profitability of investments is lower – but this is the only way to bring the country back to balance. Furthermore, the future also becomes more uncertain: with the growth of the benchmark interest rate, companies are not that keen to invest because instead of profit, they would have to put more money toward paying off higher interest rates“.

When asked why central banks are denying that they are printing money, Professor Popović explains that printing money during the pandemic was inevitable because it was done to protect human lives, and that has no price. „Plus, the biggest problem was not only the increased emission of money, but that the economic growth slowed down, and money was needed more than ever – for hospitals, medicines and other things. Of course, in order to cover that, it was necessary to print money. Central banks have not admitted to printing more money because what was at stake here was force majeure“.

In regard to the current inflation, Professor Popović says that „the drop in inflation was also a result of the drop in energy prices. Therefore, there is really no reason to expect a period of increased inflation to continue.”

(Biznis.rs, 19.06.2023)

https://biznis.rs/novac/banke/nema-opasnosti-od-hiperinflacije/

 

 

 

This post is also available in: Italiano

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