As uncertainty and inflation challenge central bankers and policymakers, they must also adapt to structural changes.
last week, central bankers were under no illusion about inflation. Its threat persists, they said, and its outlook is complicated by structural shifts in the global economy.
In Europe, business is gloomy but prices – especially in holiday destinations – and wages are still rising rapidly, raising the prospect of prolonged stagflation.Both economies will need time to adapt towards low inflation and sustainable growth rates. This will require higher interest rates for longer until inflationary pressures are definitively behind us.
Instead, economic analysis must encompass extreme supply shifts ranging from coronavirus lockdowns and fractures in global supply chains to energy supply conflicts following Russia’s invasion of Ukraine. Even in the labour market, the trends are very difficult to assess. Shopping for the Raksha Bandhan festival in Ahmedabad, India. The country is an outlier with rapid expansion.If the BoE has the most pressing problems with constrained supply, the third shift relates to public finances and applies most forcefully on the other side of the Atlantic. Simply put, the Fed must deal with the unwillingness of US politics to show any restraint over its budget.
Although China’s economy is more than twice the size of India’s, measured with purchasing power parity exchange rates, its underlying growth rate is slowing rapidly. You don’t have to predict that China is about to suffer a property meltdown to think that India will soon rival its neighbour, not only in population, but in its contribution to global growth.New Delhi’s move towards the top of the league table of global growth contributions highlights the final global economic shift.
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