Bracing For A More Inflationary World


 

In many countries, the political landscape is changing dramatically, possibly auguring more radical policies in both the US and Europe. Faced with societal ageing, deglobalisation, climate change, anti-immigration sentiment, and technological advances, central banks will feel pressure from many different directions in the coming years.
One obvious concern is fiscal policy and debt. When radical politicians come to power, they rarely have austerity in mind. Most arrive with big audacious plans requiring massive increases in spending. (Argentinian president Javier Milei is an exception, in part because he was elected to reverse the policies of the previous radicals).
But moderate leaders also will feel greater pressure to spend in the years ahead. Real (inflation-adjusted) interest rates are likely to return to their long-term trend, which means debt-service costs will eat up more of governments’ budgets.
Military spending also will undoubtedly rise, given the state of geopolitics, and spending on education will probably have to increase as governments try to position their populations for an era of artificial intelligence (AI).
On top of it all, climate-related spending and subsidies have become more urgent. Political dysfunction makes it hard to tax emissions, which would be more fiscally prudent, or raise tax revenues more generally.
All this additional net spending implies that central banks will have to offset governments’ expansionary impulses with tighter policy. But with many countries already heavily indebted, sustained higher real policy rates will fuel doubt about debt sustainability.
Will central banks blink and allow higher price growth, in the hope of inflating away some of the debt? Or will they stand up to their respective governments, raise rates, and risk a 
Liz Truss moment? When fiscal priorities and debt levels determine the scope of monetary policy, economists call it fiscal dominance. We are likely to see more cases of this.
What about demographic trends? Charles Goodhart and Manoj Pradhan believe that with the Chinese working-age population shrinking, and populations ageing elsewhere, growth will slow as the labour force declines.
Meanwhile, spending will rise – partly to meet the need for more elder care – and wage growth may strengthen as workers become scarce. All this will be inflationary.
Of course, others believe that savings will rise with ageing, and that immigration into ageing countries will help stave off labour shortages. But given many ageing countries’ open refusal to accept a large number of immigrants, this optimistic scenario seems less likely.
Ever since Donald Trump imposed sweeping tariffs on imports from China, we have been witnessing a broad-based return of protectionism, translating first into lower cross-border investment.
So far, trade has held up, partly because Chinese inputs are being shipped for final assembly to other countries before being sent to the US. But if Trump returns to the White House next January, he will try to end such transshipments, while raising tariffs all around.
Deglobalisation will continue to increase the price of foreign goods. But whether this process is inflationary may depend on how the process unfolds. As Ludovica Ambrosino, Jenny Chan, and Silvana Tenreyro note in ongoing work, if the tariffs are sudden, inflation will spike significantly, and central banks will find it hard to avoid hiking interest rates.
In the medium term, the researchers suggest, domestic importers will shift to alternative suppliers; and because the economy will be poorer and consumption lower (each dollar of spending will buy fewer imports), inflation will taper off. Interestingly, if the higher import prices kick in more gradually, falling demand in anticipation of higher import prices could lead to a slowdown in inflation for domestic goods, keeping overall inflation contained.
Thus, protectionism may increase import prices; but because it also makes us poorer and depresses demand, it may not increase inflation much.
This relatively benign view must be set against our experience in the decades of globalisation before the global financial crisis, when inflation fell worldwide. If globalisation brought down inflation, shouldn’t deglobalisation raise it?
This is what Hassan Afrouzi, Marina Halac, Kenneth Rogoff, and Pierre Yared argue. Deglobalisation, by reducing competition, will boost monopoly profits and thus increase central banks’ temptation to allow for more inflation (as a means of eroding those profits and sustaining labour’s share of output).
Of course, deglobalisation could also increase union power, which, under the same assumptions, should mitigate this temptation. But given that globalisation was accompanied by lower inflation, we should at least prepare for the possibility that deglobalisation will do the opposite.
The transition to a low-carbon economy will further complicate the picture. As ongoing work by Luca Fornaro, Veronica Guerrieri, and Lucrezia Reichlin suggests, green regulation typically imposes additional costs on dirty energy sources, sometimes to the point that banks will not even fund such projects.
But as long as dirty energy is a necessary production input, output that relies on it will be costlier. And when demand rises, firms will have to use more dirty energy, increasing costs and output prices further.
To contain inflation, central-bank policies will have to be much tighter, and that will mean slower growth. It also may slow the shift in demand towards green energy and inhibit investment in renewables (which, in the medium term, would alleviate dependence on fossil fuels).
Faced with this prospect, green-oriented central banks may reasonably want to be more tolerant of higher inflation, to facilitate the green transition.
Most of the forces and dynamics discussed here push towards higher inflation. True, if productivity increases as a result of technological advances like the widespread implementation of AI, inflationary pressures could ease because of greater, cheaper supply. At this point, however, this is more of a hope than a reality.
Perhaps the greatest worry is that with electorates demanding a change, radical leaders will create the conditions for higher inflation – for instance, by stopping immigration or spending without restraint – even as they erode the independence of the central bank. That happened regularly in the past, and the consequences were not pretty. We may have to relearn old lessons the hard way. - FMT

Raghuram G Rajan, a former governor of the Reserve Bank of India and chief economist of the International Monetary Fund, is professor of finance at the University of Chicago Booth School of Business.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT


Artikel ini hanyalah simpanan cache dari url asal penulis yang berkebarangkalian sudah terlalu lama atau sudah dibuang :

http://malaysiansmustknowthetruth.blogspot.com/2024/07/bracing-for-more-inflationary-world.html

Kempen Promosi dan Iklan
Kami memerlukan jasa baik anda untuk menyokong kempen pengiklanan dalam website kami. Serba sedikit anda telah membantu kami untuk mengekalkan servis percuma aggregating ini kepada semua.

Anda juga boleh memberikan sumbangan anda kepada kami dengan menghubungi kami di sini
Making The Invisible Obvious The Pinocchio Protocol For Real World Accountability

Making The Invisible Obvious The Pinocchio Protocol For Real World Accountability

papar berkaitan - pada 18/7/2024 - jumlah : 150 hits
We often miss what s right in front of us especially when it comes to gradual or hidden changes The Pinocchio protocol a cryptographic concept offers a powerful analogy for real world accountability Just like Pinocchio s nose grew with each...
10 Fun Facts About Emoji For World Emoji Day

10 Fun Facts About Emoji For World Emoji Day

papar berkaitan - pada 18/7/2024 - jumlah : 202 hits
Celebrate World Emoji Day with Google and check out what s new for Emoji Kitchen
Candidate Selection For Elections Must Be More Dynamic Johari

Candidate Selection For Elections Must Be More Dynamic Johari

papar berkaitan - pada 9/7/2024 - jumlah : 134 hits
Umno vice president Johari Abdul Ghani said the selection of candidates to contest in elections should not follow traditional methods but instead be more dynamic across all parties in the government He emphasised that every party in the coa...
5 Strategies For Finding More Freelance Jobs In 2024

5 Strategies For Finding More Freelance Jobs In 2024

papar berkaitan - pada 9/7/2024 - jumlah : 152 hits
BloggerBorneo com Freelancing offers a flexible and rewarding career path allowing individuals to work on a variety of projects and collaborate with different clients However finding freelance jobs consistently can be challenging To help fr...
Govt Mulls Cost Of Living Allowances For Stpm Students

Govt Mulls Cost Of Living Allowances For Stpm Students

papar berkaitan - pada 10/7/2024 - jumlah : 104 hits
PARLIAMENT The Education Ministry is considering providing cost of living allowances for Form Six students to attract more students to the programme In today s Dewan Rakyat session Deputy Education Minister Wong Kah Woh said the suggestion ...
Jana Wibawa Case Aug 20 Verdict On Muhyiddin Bid For Acquittal

Jana Wibawa Case Aug 20 Verdict On Muhyiddin Bid For Acquittal

papar berkaitan - pada 10/7/2024 - jumlah : 122 hits
Muhyiddin Yassin will know on Aug 20 whether he can walk free from four abuse of power charges linked to the Jana Wibawa programme A five person Court of Appeal bench chaired by Azizah Nawawi today set the decision date over the former prim...
Rsd Builds An Indian Scout For The Drummer Of Twenty One Pilots

Rsd Builds An Indian Scout For The Drummer Of Twenty One Pilots

papar berkaitan - pada 10/7/2024 - jumlah : 234 hits
Before Indian created the FTR hooligan flat track racers were modifying their Indian Scouts to go fast and turn left One of the pioneers of that run what ya brung attitude was the legendary Ed Iron Man Kretz Famous for winning the first eve...
Baccarat For Busy Bees How To Squeeze In Thrilling Wins During Your Day

Baccarat For Busy Bees How To Squeeze In Thrilling Wins During Your Day

papar berkaitan - pada 9/7/2024 - jumlah : 133 hits
Baccarat has roots that date back to the past The game is very popular online as well as in physical casinos The emergence of online baccarat especially via direct websites and live broadcasts has changed the way players participate in this...
10 Tips For Creating A Beautiful Garden

10 Tips For Creating A Beautiful Garden

papar berkaitan - pada 11/7/2024 - jumlah : 216 hits
Embark on a journey to craft a breathtaking garden sanctuary with meticulous planning and creative design decisions From choosing the perfect plants to integrating captivating elements such as garden shed roof designs and front yard The pos...
Flexibility In Business Operations

Umno Youth To Protest Extra Hours For Civil Servants Working Shifts

The Difference In The Concept Of Illicit Relationship Between Muslims And Non Muslims

Biodata Hael Husaini 2 Kali Juara Ajl Dan Perjalanan Dalam Industri Seni

Pensyarah Didakwa Hina Nabi Jawi Turut Buka Siasatan

Pas Langkaui Retorik Dap Isytihar Pas Muuh Utama

Murid Buktikan Pada Guru Lembu Makan Martabak

Abang Adik Wins Best Film Award In Los Angeles


echo '';
Senarai Lagu Tugasan Konsert Minggu 1 Gegar Vaganza 2024 Musim 11

Info Dan Sinopsis Drama Berepisod Dhia Kasyrani Slot Akasia TV3

Biodata Terkini Reshmonu Peserta Gegar Vaganza 2024 Musim 11 GV11 Penyanyi Lagu Hey Waley

Gegar Vaganza 2024 GV 11 Hadiah Tiket Peserta Juri Format Pemarkahan Dan Segala Info Tonton Live Di Astro Ria Dan Sooka

6 Janji Donald Trump Kalau Dia Naik Jadi Presiden Semula


Football Online Sports Gambling 1xbet 1xbet Globa

Mesyuarat Mpsm Kulai Bil 3 2024

7 Keistimewaan Hari Arafah Hari Yang Dinantikan Jutaan Umat Islam

Generasi Milenial Dan Gen Z Dukung Nkri Nomor Urut 2 Simbol Harapan Baru Kalimantan Barat

Kempen Hartanah Bumiputera Matrix Miliki Rumah Selesa Cipta Kenangan Indah Bersama Keluarga

Bukan Semua Cendawan Boleh Makan Ada Yang Beracun