Central banks set for 'forceful' hyperactivity?: Mike Dolan
By Mike Dolan
LONDON, Oct 4 (Reuters) -Sudden ebbs and flows of inflation without equivalent hits to economic output may be a feature of a post-pandemic world of fragile supply chains - potentially requiring more forceful and hyperactive central banking, and possibly in both directions.
The speed of the global inflation spike after the twin shocks of COVID-19 and the Ukraine invasion has by now almost been matched by the disinflation that's followed.
So much so, that central banks are now just as rapidly reversing the steep, and arguably late, interest rate squeeze they used to contain prices over 2022 and 2023.
The truly remarkable outcome despite that roller-coaster is a likely "soft landing" for economies without any major contraction of overall output. And a big question for policy makers, business and financial markets alike is whether we've just returned to square one while dodging a rare bullet.
Trying the frame the lessons of the episode this week, the Bank for International Settlements - the umbrella organisationfor global central banks - once again sketched a world where supply shocks may be more frequent and inflation edgier.
But in a speech in London this week, BIS Deputy General Manager Andrea Maechler nuanced the picture to suggest central banks should no longer "look through" supply shocks as temporary inflation irritants in the way they had often done pre-pandemic.
In particular, she spotlighted much steeper supply curves and a steeper "Phillips Curve", which plots the relationship between unemployment and wages, or more broadly output and prices.
The gist of her argument is that such steep supply curves mean bigger moves in prices for a given shift in output, seen most spectacularly as post-pandemic labourshortages led to wage surges for companies that wanted to ramp up business quickly.
Disruptions to overseas supplies and imports - most obviously in the post-Ukraine energy price shock - similarly meant rising output twinned with a supply shock had a much sharper effects on overall prices than previously.
And crucially, the impact on economy-wide inflation was greater and more rapid than prior commodity and sectoral shocks of recent decades because they hit when overall inflation was already above central bank target rates, Maechler said, pointing to BIS studies illustrating that effect.
TAKE CARE
Maechler concluded "central banks must exercise care when assessing the extent to which they can afford to look through supply shocks".
And that should colour their approach as those supply shocks were set to be more frequent in a world of de-globalisation, geopolitical tension, falling workforces, high public debt, climate change and a transition to green energy.
Being more "forceful" and active in their policy response, regardless of the impact on underlying demand, was likely necessary to ensure more volatile inflation in the short term did not disturb longer-term inflation expectationsand faith in 2% targets remained.
But most intriguingly, given the head-scratchingover how the wild swings in inflation and interest rates of late did not sow a major recession, Maechler said steep supply curves also meant wages and prices may more quickly subside to target with only relatively mild hits to output from higher interest rates.
"Raising policy interest rates in response to adverse supply shocks may have only limited effects on activity if Phillips curves are steep," she said. "Then, slowing the economy to tame inflation could be less costly in terms of output."
"Today's soft landing outlook may be partially explained by the economy - and in particular labour markets - being in a state where the Phillips curves are steeper than had been the case in the decades prior to the pandemic."
UNDERSHOOT
Where all ofthat fits into today's picture is less clear, though the theme of persistent supply is clearly topical in a week of such ramped-up geopolitical anxiety.
Whether the steep supply curves of the post-pandemic period endure or whether most of the quirks have already been ironed out is another question.
But presumably it would also suggest supply-related developments that see inflation suddenly undershooting targets again and potentially threatening price stability on the downside should similarly be met with central banking force.
Only this week, European Central Bank policymaker Mario Centeno made that case clearly as the ECB en masse appeared to pivot to faster easing. "Now we face a new risk: undershooting target inflation, which could stifle economic growth," he said.
Facing falling monthly prices last month and annual inflation back below 1%, new Swiss National Bank chairman Martin Schlegel also said the SNB was not ruling out taking interest rates back into negative territory.
And even recent hold-outs at the Bank of England suggested they pick up the pace too, with BoE boss Andrew Bailey talking of being "a bit more aggressive" in cutting UK rates.
For investors, the whole scenario points to a more volatile interest rate environment in both directions than they had been accustomed to in the pre-COVID decade.
And yet it could remain a potentially positive horizon for company earnings and equities if broader economies can continue to surf wavier prices and borrowing rates much better than they have done for decades.
The opinions expressed here are those of the author, a columnist for Reuters
Is inflation back in its box? https://tmsnrt.rs/3TVyHbQ
Interest Rate Reversal https://tmsnrt.rs/4dwkHfB
BIS chart on monetary policy and inflation https://tmsnrt.rs/4eQa1d2
BIS charts on the 'Beveridge Curve' and frequency of price changes https://tmsnrt.rs/4eGdElS
A shift in the Beveridge Curve? https://tmsnrt.rs/3ebbwsa
Global supply chain pressures have abated https://reut.rs/3BqADml
By Mike Dolan; Editing by Jamie Freed
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
