“Awakening”: Markets Warn Central Banks to Understand Inflation | Inflation

NSFinancial markets fear that the world’s major central banks are at risk of “economic disasters” by mistaking the threat of rising inflation and not stopping the stimulus that has flooded the global economy. increase.

From the Federal Reserve European Central BankPolicy makers are tackling price hikes that haven’t been seen in decades while trying to maintain a volatile economy towards recovery from the coronavirus pandemic.

Central banks mainly stick to the mantra that inflation is “temporary”, From timber to turkey Economists, business leaders and investors are alerting as it eases in the coming months.

They fear that without swift action, such as rising interest rates, runaway inflation, which has not been seen in developed countries since the early 1980s, will be so much embedded by next year that policy shifts will be too slow to be effective. increase. ..At least they see it as an important moment to end this Large-scale money printing scheme Soared to counter the pandemic recession.

Julian Jessop, an independent economist who has worked for HM Treasury and city companies, said most central banks are “obsolete” and rising costs across the supply chain, including transportation, will continue to put upward pressure on prices. I said I would. I look forward to working with you next year.

“Central banks need to respond to changing economic conditions,” he said. “The recession that justified additional quantitative easing and maintaining emergency low interest rates is over.”

Given that interest rates were at record lows, a modest rise “is not an economic disaster, but it should help prevent it,” Jessop added.

“Interest rates and borrowing costs could remain close to record lows, especially real interest rates, even after taking inflation into account. In reality, central banks do not step on the brakes, they simply accelerate. I’m just taking my foot off. “

Inflation reached 6.8% in October, the highest in 20 years, and Poland decided to launch an attack immediately. Poland’s Prime Minister Mateusz Moravietski said Thursday that the government would cut fuel and energy taxes from December and provide bonuses to the hardest-hit households.

He described the move as an “anti-inflation shield” and said the government would cost about 10 billion zloty (£ 1.8 billion) and additional funding would come from spending cuts.

Morawiecki said inflation reached 6.8% in October, its highest since 2001, due to rising energy costs, Russian gas policy, European Union climate policy, CO2 emission certificate prices, and companies. Helps you survive the Covid-19 pandemic.

Food, fuel and energy prices are rising. “We are proposing significant tax cuts to mitigate the effects of inflation,” Morawicki said, adding that inflation could still rise during the winter months from December to March.

Inflation has been stalking the world economy for months, but has exploded in recent weeks. The 6.2% surge in US inflation over the year to October surprised the market, with some consumer basic costs such as 46% rise in gasoline prices and 11% for meat, fish and eggs. It highlighted a significant rise. In the UK, inflation has skyrocketed to 4.2%, supported by record natural gas prices.

The supply constraints caused by the pandemic are set to last for months, and the cash wave of Covid consumers chasing the limited flow of goods, Federal Reserve, Jerome Powell, Inflation is temporary and looks more and more hollow.

Chris Watling, CEO and Founder of Advisory Farm Longview Economy, Agree that the central bank is at risk of being expelled.

After the 2008 financial crisis, they pursued loose and tight fiscal policy in the form of quantitative easing and spending cuts. Currently, they are in a “loose financial, loose financial” state, with too much money and too few commodities.

“They will wake up someday in the catch-up phase,” he said. “Perhaps at the end of next year, 2023, it will be tightened as soon as prices rise, and when you tighten into that situation, the bubble, it will burst. So that’s a real challenge for them. “

Mohamed El-Erian, global economist at insurance group Allianz, said the United States, and perhaps the world, could be in recession if the Fed was too late to raise interest rates. “Such tightening could be consistent with the other three contractions in the United States: tightening market fiscal conditions, lack of additional fiscal stimulus, and reduced household savings.”

It’s an unstable tightrope walk for policy makers. Inflation can quickly undermine business and consumer confidence, but becoming too hard can jeopardize recovery and seriously stimulate the fast-growing real estate markets in countries such as the United States, United Kingdom and Australia. There is also the possibility of doing so.

El-Erian said policymakers need to consider broader changes to increase productivity and improved monitoring of financial stability risk, especially in non-banking sectors.

Some central banks are already preparing to jump off the tightrope. Close to raising interest rates Early this month. Ominous US inflation means that when policymakers meet again in the first week of December, they seem to be sure to take the plunge and raise interest rates by 0.25 points to 0.35%. ..

Rising prices have exposed central bankers Inflation’s “King Canute” Theory, Former Governor Bank Mervyn King said this week in a powerful attack on how policymakers around the world responded to the Covid-19 crisis.

New Zealand doesn’t get much market attention, but this week the New Zealand Reserve Bank Second-class rise over months To cool inflation, which reached 4.9% last month. Beyond the Tasman Sea, the Reserve Bank of Australia has reiterated its belief that interest rates will not rise from a record low of 0.1% until 2023 at the earliest, but the market is betting that it will be 1% this time next year. But in the Commonwealth of Nations, the largest bank, lenders voted on Friday to raise fixed rates for the third time in six weeks.

Following the example of New Zealand, the South Korean central bank has announced a rise to 1% amid concerns about rising living costs. This is the second increase this year. Inflation in the country reached 3.2% in October, a record high for nearly a decade.

Alex Joiner, chief economist at IFM Investors in Melbourne, said the central bank has been waiting for it, as pressure from the pandemic continues to ease and “against hope” that supply problems will be resolved.

“They are trying to soften the expectations of the market, but the problem is that the market doesn’t believe them,” he said. “Market prices are aggressive, indicating that investors believe interest rates will rise.”

Sign up for your daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk.

A cautious and optimistic federal view is so far widespread, with both Joiner and Watling pointing to signs of supply chain easing. The global transport cost benchmark, known as the Baltic Dry Index, is declining, and China has begun to overcome the power shortages that hurt huge manufacturing industries in September.

However, it is possible that everyone underestimates the extent of structural changes in the global economy that have begun in recent years and have been accelerated by Covid. These could mean that both inflation and growth will never return to the “just right” Goldilocks era.

John Stadinsky, managing director and vice chairman of Pimco, the world’s largest fixed income trader, told the Bloomberg Forum recently that inflation could continue to rise for three to five years. As the world emerges from the pandemic crisis, supply chains need to be restructured, and as trade becomes more globalized, inflation can be “extremely volatile,” he said.

“Awakening”: Markets Warn Central Banks to Understand Inflation | Inflation

Source link “Awakening”: Markets Warn Central Banks to Understand Inflation | Inflation

Back to top button