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Will inflation ketchup? | Financial Times


Hans-Werner Sinn, the forever Ordoliberal former head of influential Munich-based think-tank Ifo, has made a career out of warning about inflation. So, with prices rising at north of 5 per cent here in Germany, it’s not surprising that he’s back on our screens.

Fans will be pleased to know that he’s lost neither the beard, nor the belligerence.

Here he is on TV. Berlin last week vigorously shaking a bottle of Heinz’s finest to prove he was right all along that monetary policymakers’ low rates and bond buying “binges” were going to trigger spiralling inflation. (The bottle clip is around the 14 minute mark for those of you who can’t quite stomach the full 50 minutes.)

What he’s getting at is clear enough. Policymakers have been shaking the bottle so hard that soaring prices are now being unleashed like big red blobs, creating havoc on the white plate of calm that characterised our lives in those bygone days when the European Central Bank was merely a glint in a French bureaucrat’s eye. The end result is, as the German commentator — borrowing from one of Sinn’s tracts — puts it, “Erst kommt gar nichts, und dann kommt ganz viel.”

The theory doesn’t stand up to the reality that most of the inflation in the eurozone right now has its roots in supply chain bottlenecks. But we’re not quite sure how you counter Sinn through the medium of food. Empty supermarket shelves perhaps? Or even a ketchup bottle with an extraordinarily narrow end?

While those of a dovish bent were quick to have a laugh at Sinn’s expense, he is not the first to turn to condiments to prove an economic point.

Back in 2010, The Economist’s Buttonwood column delivered its take on the ketchup theory of inflation, quoting Tim Lee of pi Economics, who described it thus: “The central bank keeps ‘shaking the bottle’ (ie monetising debt) but no ketchup (ie inflation) comes out — so it shakes even harder.”

More recently, the FT’s Martin Sandbu did what all right-thinking people do and turned the bottle on its head and waited, using the theory to explain why he thinks that the ketchupy nature of price pressures right now might actually lead to deflation once supply chain snags disappear.

To be fair to Sinn, inflation’s clearly not a nothingburger. At the very least the theory underlines the, erm, pickle policymakers face in gauging just how pent up price pressures are.

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