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What follows a pandemic, unemployment and emergency stimulus? Inflation, most likely
- It’s rare to see the world economy hit simultaneously by demand and supply shocks
- However, central banks now printing vast sums of money in their responses to Covid-19 might be sowing the seeds of global inflation
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In the field of epidemiology, there is a saying: “If you’ve seen one pandemic, you’ve seen one pandemic.” But while all global disease outbreaks are epidemiologically unique, their likely economic consequences may be easier to discern.
The longer-term consequences, however, sometimes bear little relation to the immediate economic challenges arising from the pandemic and efforts to tackle it.
As governments around the world impose business lockdowns to cut the rate of Covid-19 transmission, the initial effect of the global pandemic has been an epidemic of joblessness. The economic legacy, however, might be price inflation.
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Already, although the pandemic is still raging, there is a risk of food price inflation emerging. Qu Dongyu, the Chinese director general of the UN’s Food and Agriculture Organisation, last week argued for keeping global food supply chains moving. “Restricting trade is not only unnecessary, it would hurt producers and consumers and even create panic in the markets,” he said
Hopefully, nations will heed Qu’s warning, but Thai rice export prices hit a seven-year high last week, in part due to temporary export restrictions imposed by Vietnam and Cambodia.
It’s also important to remember that economic shocks do periodically dent the global economy, just as they do national economies. There have been other pandemics, and there have been wars. As for a self-inflicted national economic catastrophe, we need look no further than the Great Leap Forward in Mao-era China.
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