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Macroscope | The storm clouds of inflation are gathering despite market scepticism
- The air was thick with warnings at the IMF/World Banks meetings, as economists call for central bankers to pounce on inflation expectations and take early monetary action. Only financial markets seem slow to catch on
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As recently as a few months ago, rising inflation was still seen by many as a minor bump in an otherwise smooth road leading out of the Covid-19 pandemic and into economic recovery, monetary stability and continued financial market prosperity. That was a foolish and naive assumption.
Inflation has grown from a fluffy cumulus cloud on the horizon to a dark and threatening nimbus cloud looming above our heads that could turn into a perfect storm at any moment. It could deluge the overinflated stock and bond markets as well as the still-fragile economic recovery.
The air was thick with warnings about inflation at the annual meetings of the International Monetary Fund and World Bank in Washington. There is, as Tobias Adrian, IMF director of monetary and capital markets put it, “tremendous uncertainty” over the outlook for prices and inflation.
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As IMF managing director Kristalina Georgieva noted in answer to my question, the inflation surge reflects a faster-than-expected recovery in demand from advanced nations that has not been matched by the recovery in supply from emerging economies.
The hope is that inflation will recede again next year as supply picks up, but there is no guarantee, given the heavy toll the Covid-19 pandemic is exacting on emerging economies lacking vaccines. Thus, the danger of inflation spilling over into more areas is real, as Georgieva acknowledged.
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Japan beef bowls and coffee costing more as workers feel the pinch from food price hike
Japan beef bowls and coffee costing more as workers feel the pinch from food price hike
Inflation has taken on the form of a multiheaded hydra affecting food and industrial commodity prices, transport costs (shipping especially), prices of manufactured goods, the cost of various services and is now exerting upwards pressure on wage levels, too.
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