Real wages get hammered. Interest rates have to go up, tipping economies into recession and raising unemployment.
Public spending has to be cut to cope with soaring interest and welfare payments.
And, perhaps worst of all, governments have no one else to blame as voters work out that printing money for wild spending sprees is what caused the crisis in the first place.
Here's a simple prediction. Not a single government will be re-elected anywhere in the developed world over the next three years. Inflation will wipe them all out.
This year is shaping up as a terrible one for any ruling party to try and get re-elected. In France, Macron may have won a second term as President, but only because he was lucky enough to face the charmless, barely coherent, far-right Marine Le Pen in the second round. Right afterwards, voters stripped him of his majority in the Assembly, turning him into the lamest of lame ducks.
Governments have fallen in the last few weeks in Estonia and Israel. Mario Draghi's grip on power is crumbling in Italy, and Pedro Sanchez's in Spain. It is anyone's guess how long Boris Johnson will cling on in the UK but it can only be a matter of time before he loses power.
In each case, psephologists and political pundits will come up with plenty of specific explanations for a change of government. A party has been in power too long. A scandal or two has knocked their popularity. Or a rival has come up with a convincing alternative.
Often they will be perfectly convincing. But there is a far bigger theme. With prices rising by between 8 per cent and 10 per cent everywhere (and by a terrifying 20 per cent in the case of Estonia) and still climbing, virtually no ruling administration can be re-elected anywhere. Here's why.
First, once inflation starts to take off real wages inevitably get hammered. We can see that very clearly in the UK, where wages may be rising by 4 per cent per year, but with inflation now at 9.1 per cent, the amount that people earn is actually falling by 5 per cent annually.
But the same remorseless logic is taking hold everywhere. In Germany, wages are rising at an average of 3 per cent but prices are going up by 7.9 per cent; in the US, wages are up by 3.4 per cent but prices by 9 per cent; and in the Netherlands wages are up by 3.8 per cent but inflation has now gone past 10 per cent. Living standards are getting squeezed and people are feeling poorer. In many cases, families have to cut back on holidays, new clothes, or even food simply to make ends meet.
Against that backdrop, it is hardly surprising that whoever happens to be in power is very unpopular.
Next, recessions are inevitable. Central banks have only one real weapon to bring prices back under control again and that is pushing up interest rates. The Federal Reserve has started tightening monetary policy in the US. So has the Bank of England in this country, and the European Central Bank is expected to start next month.
The trouble is, that pushes economies into a recession. Sure, it works. Demand is depressed, some businesses go bust, unemployment rises which stops people asking for increases in their pay, and eventually supply and demand start to match again, and inflation comes under control. But it is a painful process, and lots of people get hurt along the way. They take that out on the government.
Thirdly, public spending will have to be cut back. When inflation hits the 10 per cent level, the amount of interest that governments have to pay on all the debt they owe (and most of them owe more money after Covid than at any time since the Second World War) goes up as well.
So do many automatic, inflation-linked welfare payments, as we have just seen in the UK with rises in pensions, especially for former public sector workers. The result? There is far less money to be spent on everything else.
Finally, governments have only themselves to blame. Sure, they may try to deflect some of the anger elsewhere. But the harsh truth is that the root cause of the current round of inflation is spending too wildly, and printing too much money, especially during Covid lockdowns that look more and more like a catastrophic mistake. Voters aren't stupid. They can work that out - and they are not in a mood to either forgive or forget.
Add it all up, and one point is clear. Inflation is completely lethal for any party that happens to be in power. Here is a simple prediction. It doesn't matter whether they are from the left or the right. Over the next three years, not a single ruling party anywhere in the developed world will be re-elected.
One by one, presidents, prime ministers and chancellors will be thrown out of office. Inflation will redraw the landscape in many different ways. But a series of changes of government will be one of them - and the next three years will be very politically unstable.
Written by: Matthew Lynn
© 2022 The Daily Telegraph UK
