Why new technology will pump up inflation
New technology will make it easier to sneak through price rises without anyone really noticing, says Matthew Lynn.
People have been warning 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 with 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 the likes of which has not been seen since the 1970s.
But there is one other factor as well.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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 realises.
SEE ALSO:
The inflation scare will fade – here’s why
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?
Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
By Vaishali Varu Published
-
Review: Three magnificent Beachcomber resorts in Mauritius
MoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
By Ruth Emery Published
-
Should your business invest in a VoIP phone service?
Here's what you need to know about VOIP (voice over IP) services before landlines go digital in 2025.
By David Prosser Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
What is the future of Royal Mail in the UK?
With fewer of us sending letters and parcels, the Royal Mail is finding dealing with the nation’s post is an increasingly unprofitable and costly business.
By Simon Wilson Published
-
What's the secret of Manolo Blahnik's success?
Fashion maestro Manolo Blahnik shows little sign of slowing down at 81, and his company notched up a record financial year in 2022. What is the secret of his success?
By Jane Lewis Published
-
Michelle Mone's "tough year of pain"
Michelle Mone liked to portray herself as a working-class heroine who worked her way to the top through grit and determination. But her pedestal is built on sand.
By Jane Lewis Published
-
Trevor Milton, the Elon Musk wannabe, is jailed for fraud
The former CEO of Nikola, Trevor Milton, has been found guilty of lying about the development of the company's electric trucks.
By Jane Lewis Published
-
Directors should think twice before waiving limited liability
Should small-business directors ever provide a personal guarantee in return for bank finance?
By David Prosser Published
-
Why Russia's economy is doing better than predicted
Sanctions were supposed to strangle Russia’s economy, but it seems to be thriving. What’s going on?
By Simon Wilson Published