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Department of Economics

Lund University School of Economics and Management

High inflation and rising interest rates: Putin's fault?

Published: 2022-05-16

The Russian invasion of Ukraine has affected the world in many ways. One effect is higher energy prices further accelerating an already rising inflation rate following the pandemic. Actually, according to Associate professor Fredrik NG Andersson, we have the highest inflation in decades. Learn what he comments and suggests for the future!

”We need higher interest rates and we need governments to scale down the expenditures,” says Fredrik NG Andersson in his expert comment.

Fredrik NG Andersson is a macroeconomist and specialized in long term economic transitions. He has been teaching, supervising and conducting research at LUSEM for at least 15 years. Fredrik took his PhD in econmics in 2008. How can he explain that the war in Ukraine might be of interest when addressing questions about high inflation and rising interest rates? 

How can the high inflation be a result of the war in Ukraine?

”The war in Ukraine has increased the price of energy, of oil and not least natural gas in Europe. This actually began already in the fall of 2021 but the problem has increased. Higher prices are driving inflation at the moment and there is a risk that this inflation will spread over to wages causing inflation to rise even futher.”

What will happen now and will the inflation come to and end?

”Since we have to pay more for the things we buy we will become poorer and then we want to be compensated for that by having higher wages. If we get higher salary the prices will increase even more to finance these higher wages which means that inflation will continue.”

You said that we have the highest inflation in decades. Haven't we heard that before?

”Yes, we have had high inflation before; especially in the 1970s and the 1980s following the oil price shocks in 1973 and 1979. However, we have become accustomed to low and stable inflation in the last decades. That may now change.”

What can we do about it?

”Policymakers need to scale down some of the economic stimulous from the pandemic. We need higher interest rates and a consolidation of the public finances. That may risk a recession. However, if we continue with the expansionary policy we run the risk of many years of high inflation, which in turn will cause other economic difficulties.”

What will happen next if we follow your advices?

”Times will be tough but it will be a short-term problem. Economic growth will slow down for a while and there will be higher unemployment for a few years. But it will pass, and we will then return to the high growth low inflation environment we have become accustomed to. My personal view is that we should accept the short-term burden. If we don’t we risk undermining our economic prosperity for decades to come. That is the lesson from history.”

Watch the full expert comment with Fredrik NG Andersson:

 

Contact

Fredrik NG Andersson

Senior Lecturer, Associate professor, Department of Economics
fredrik_n_g.andersson@nek.lu.se

Fredrik's profile in the LU Research Portal

Further reading
Latest paper by Fredrik NG Andersson:
The quest for economic stability: a study on Swedish stabilization policies 1873-2019