Image Source: PixabayInflation… that hidden tax that’s still very much with us. Since 2022 and the post-Covid economic recovery, rising prices have weighed heavily on household purchasing power. After successive interest rate hikes, prices finally seem to be slowing down, but there are still many uncertainties. So can we look forward to a return to normal, or should we expect a new economic reality marked by high inflation?In Western countries, price rises remain high overall: in the USA, they are now expected to reach 2.5% by the end of 2024, in the UK 2.6% after falling back below 2% (due to higher energy prices), while in Europe they have also risen above the 2% target. However, most analysts expect inflation to strengthen over the longer term. Inflation is expected to exceed 2% by 2025 in all these advanced zones, and should not fall below the sacrosanct target by 2027. In the UK, for example, the Office for Budget Responsibility (OBR) forecasts average inflation of 2.5% in 2024, 2.6% in 2025, and then gradually falling to 2.0% by 2029.These assumptions are realistic, for a variety of reasons. The transformation of global balances and the return of protectionism will accentuate the many challenges all of an inflationary nature. For example, trade tensions between the United States and China could rapidly bring global supply chains to a standstill, despite their ongoing restructuring. Also, Trump’s planned protectionist policy, marked by tariffs, will have global repercussions on price levels, given the influence of the United States. Tax cuts and stricter immigration measures, in the country as elsewhere, will also put upward pressure on prices, by mechanical effect.Governments are also faced with inextricable budgets, barely closed at the start of 2025. Between high spending and tax hikes, the noose is tightening. In the same way that higher spending can increase profits and hence prices, higher taxes would be passed on by companies to the cost of their products, unless they translated into lower wage growth (given the level of inequality, increased wage demands, and persistent social tensions in a period conducive to democratic breakdown, this hypothesis is unlikely). What’s more, global indebtedness is now at an all-time high, and inflation is helping to limit this downward spiral. It remains in the interest of governments, despite their powerlessness over these dynamics, to maintain a certain level of inflation to slow their indebtedness. The monetization of public debt, which will continue until the onset of a major financial crisis, will also continue to fuel latent inflation for some time to come.In a competitive world, the currency war and the new American president’s determination to keep the dollar king are adding further pressure to price variations. Particularly in Europe, the euro’s depreciation against the world’s major currencies is accentuating inflation. For several months now, the euro has been depreciating sharply, which on the one hand has benefited corporate competitiveness, but on the other is causing households to endure even more difficult times. While inflation is set to pick up in the most advanced economies, this will be particularly the case in the eurozone, despite the ECB’s interest-rate hike. In the United States, this phenomenon will occur more slowly, as the new American election will get off to a flying start with massive investments, but also very sharp spending cuts (nearly $2 trillion announced by Elon Musk’s Ministry of “Government Efficiency”). Furthermore, US central bank chairman Jerome Powell has indicated that the Fed is now in a new phase of its monetary policy, where the pace of rate cuts will be much slower. This will have less impact on inflation.That said, if we take a longer-term view, of at least three to five years, all the signs are that we’ll be operating in a constantly inflationary environment on an international scale. As the new world takes shape, the chiaroscuro resurfaces with risks of all kinds that are bound to push prices higher. Current geopolitical conflicts, from the war in Ukraine to the Israeli-Palestinian conflict, are pitting the world’s greatest powers against each other, and threaten the outbreak of a world war at any moment. In the face of this, military budgets are on the rise in every country in the world, fuelling a war economy that is conducive to inflation. Other “cooler” conflicts, such as the one in Taiwan, only reinforce this hypothesis. But there may also be conflicts other than territorial ones, such as those linked to rare earths and the securing of these essential elements for tomorrow’s sectors (artificial intelligence, defense, etc.). Also, food security and the risk of shortages in certain countries are major contemporary challenges that will push prices to higher levels. While it is clear that biotechnologies and the creation of synthetic foods can fill this gap, it will not be enough. Artificialization will never replace reality without consequences. The transition to a more artificial world, in the interests of risk prevention, also requires a reorganization that is very costly. On the energy question in particular, the transition to a low-carbon economy presupposes massive investment in renewable energies, which is likely to be passed on in final prices.The major changes ahead are also social and societal in nature. The world’s aging population, for example, is already driving up social spending (pensions, healthcare, etc.), which in turn is driving up prices. Expenditure that does not replace productive forces, but simply feeds consumption needs, is more inflationary than anything else. This was particularly the case during the health crisis, when governments and central banks flooded the global economy with liquidity to keep economic activity going and households consuming. As an example of societal change, the ever-accelerating urban migration (in 1980, 30% of the world’s population lived in cities, today it’s almost 60%), whether linked to desired or unwanted migration, will also drive up housing prices in specific areas, and basic services in entire regions. In other words, in a world at risk and constantly changing, sustained inflation is a classic phenomenon that everyone needs to take into account. In this context, gold plays a central role. Inflation – in other words, the loss of value of money – and successive interest rate cuts are conducive to a steady rise in the price of gold. Economic and geopolitical uncertainties reinforce the appeal of the yellow metal, as gold thrives on challenges and risks. It will also continue to benefit – as it is proving today – from the influence of the central banks of the new world powers, such as China and India, which are increasing their yellow metal reserves to reduce their dependence on the dollar and gain in monetary and financial sovereignty. This combination of factors will lead to a sustained rise in precious metal prices over the coming years, in line with what is happening today.As a result, central banks (the source of price fluctuations) are forced to take all, or at least some, of these new factors into account. They also seek to do so by including current and future risks (human, climatic, social, etc.) in their estimates. But these estimates remain limited, as they cannot capture the complexity and unpredictability of these challenges. For example, in the context of the Middle East conflict (exacerbated by the unrest in Syria), a major new oil shock cannot be ruled out. Such an event would have far greater global repercussions than those seen in the 1970s, when the world economy was far less financialized and therefore less interdependent. Traditional economic models, based on mathematical equations and correlations, cannot anticipate the scale of such upheavals. These historical events – brought about by long history – are not linear, but are based on exponential dynamics that escape the tools of anticipation. In this context, central banks will be powerless to act. Their way out would be to maintain very high interest rates, but the repercussions on the economy and the financial system would be catastrophic. High inflation is therefore a new reality, at a relatively high level and for many years to come.More By This Author:Gold & Silver Consolidating Recent Highs, Poised For Next Leg Higher United States: Huge Debt Refinancing Remains 2025’s Biggest ChallengeWhat Is The Economic Outlook For 2025?