Global supply disruptions could get even worse

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GLOBAL AFFAIRS

Central bankers warn

The Port of Long Beach is considered to have a record number of container ships waiting to unload in Long Beach, Calif., On September 22. Photo: REUTERS

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The Port of Long Beach is considered to have a record number of container ships waiting to unload in Long Beach, Calif., On September 22. Photo: REUTERS

Supply constraints hampering global economic growth could worsen further, keeping inflation high for longer, even if the current price spike is expected to remain temporary, the world’s major central bankers warned on Wednesday.

Disruptions to the global economy during the pandemic have disrupted supply chains across continents, leaving the world short of a plethora of goods and services, from auto parts and microchips to container ships that transport of goods across the seas.

“It is (…) frustrating to see the bottlenecks and supply chain problems not improving, in fact at the margin apparently getting a bit worse,” said the president of the Federal Reserve, Jerome Powell, at a conference.

“We see this probably continuing next year and maintaining inflation longer than we expected,” Powell told the European Central Bank’s Forum on Central Banks. Speaking alongside Powell, ECB chief Christine Lagarde expressed similar concerns, saying the end of these bottlenecks, which economists once thought in a matter of weeks, is uncertain.

“The supply bottlenecks and disruption of supply chains, which we have been experiencing for a few months (…) seem to continue and accelerate in some sectors,” said Lagarde. “I’m thinking here of shipping, cargo handling and things like that.”

Global inflation has skyrocketed in recent months due to soaring energy prices, and production bottlenecks are pushing prices even higher, raising fears that the surge, if it does lasts long enough, doesn’t creep into expectations, and doesn’t improve the overall inflation profile.

Indeed, Lagarde said the ECB would be “very attentive” to these second-round effects while Bank of England Governor Andrew Bailey, another forum speaker, said he would monitor “very closely. “inflation expectations.

“If this period of higher inflation, although it is ultimately very likely to be temporary, if it lasts long enough, will it start to affect, to change the way people think about inflation? let’s watch this very closely, ”added Powell.

The problem is that central banks, the main price regulator, have no influence over short-term supply disruptions, so they are likely to be bystanders, waiting for economic anomalies to correct themselves. themselves without lasting damage.

“Monetary policy can’t solve shocks on the supply side. Monetary policy can’t produce computer chips, it can’t produce wind, it can’t produce truckers,” Bailey said. Yet even though policymakers have called for increased attention to inflation, all have maintained their long-held view that the spike in inflation will be temporary and price increases moderate next year, falling back to the central bank targets or below.

Concerns about “sticky” inflation have fueled a debate over whether to unwind the crisis-era stimulus measures, and Wednesday’s panel comments reinforced expectations that the world’s largest central banks are following steps. very different calendars, remaining out of sync for years to come.

The Fed, BoE and Bank of Canada have openly discussed policy tightening while central banks in countries like South Korea, Norway and Hungary have already raised interest rates, starting a long path towards the normalization of their policy.

The ECB and the Bank of Japan will likely be the last players, exercising extreme caution after underestimating their inflation targets for years.

The ECB even refuses to discuss tapering and has already signaled its tolerance for exceeding its inflation target because it prefers to act too late rather than too soon.

That kind of patience was only bolstered by Lagarde and Bank of Japan Governor Haruhiko Kuroda, even as both provided relatively optimistic growth prospects, arguing that their economies could return to pre-pandemic levels. In the coming months.


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