People have been warned about inflation taking off ever since central banks started printing money on a vast scale in the wake of the financial crash of 2008-2009. This year it finally happened. In the UK, prices are already rising by more than 7% a year, the fastest rate in three decades. And that is mild compared to much of the rest of the world. In the US, it has reached 8.5%; in Spain it is above 9%; and in Lithuania an alarming 16%.
There are lots of explanations for that: the pandemic and global lockdowns restricted production and played havoc with supply chains; governments printed money on an unprecedented scale to support their economies; and, on top of all that, the war in Ukraine has sent the price of oil, natural gas and various other commodities spiralling. It is an inflationary mix of the likes of which has not been seen since the 1970s.
But there is one other factor as well.
The curse of the QR code
For a long time it was assumed that the internet drove prices down. After all, it made every kind of market much more competitive, with new entrants able to offer their products to the whole world with just a website. Search and price-comparison sites made it virtually impossible to over-charge for anything. Companies could use new supply chains and gig workers hired from anywhere to drive down their costs. For much of the 2010s it seemed to be impossible for central banks to get prices moving up again even if they wanted to.
Now that inflation has got started, however, technology might be accelerating it rather than bringing it under control. In restaurants, changing the prices of the dishes used to mean laboriously rewriting all the menus and getting them reprinted; it took time and money. Now you can simply update the QR codes on a digital menu that exists on your customers’ smartphones. It takes a few minutes and costs nothing. The result is that the business can change its prices all the time. Contactless cards, which now account for 54% of all debit card and 69% of all credit card transactions, mean that very often we hardly even look at the prices of things we are buying, especially if it is a relatively small transaction. We just swipe the card and forget about it (at least until the statement arrives). Again, that makes it far easier to raise prices. Instead of resisting the increase, and looking to see if we can find better value elsewhere, we don’t even notice that something costs more than last week.
In a similar way, digital stickers mean goods in shops can change their prices all the time, mostly upwards as it happens. And “dynamic” and “surge” pricing technologies, developed in the airline and taxi industry, now means that companies have the software to adjust prices on a minute-by-minute basis. We already expect the price of an airline ticket to change minute by minute and, certainly, from one day to the next. The price of an Uber ride will vary hour by hour. We have become accustomed to the idea that the cost of things we buy is in a rapid and constant state of flux. Price stability has long since been left behind. All that makes it far easier for businesses to push up prices.
The new normal is constant flux
In the first two decades of the internet, prices were very stable. It didn’t have any impact on inflation because there wasn’t any to worry about. Right now, that has started to change and change dramatically. Prices are already galloping ahead, and it is starting to look as if the internet is accelerating that process. That may very soon start to create a self-sustaining inflationary spiral. Policymakers have only just started to grasp how hard it will be to bring the 6% to 8% inflation we are now witnessing under control. They are assuming that a minor tweak or two on interest rates, a little less printed money, and some pushback from savvy consumers, will stop it in its tracks. The internet may have changed all those equations – and if so inflation will be a lot higher for a lot longer than anyone yet realizes.