A major inflation crisis is knocking on the doors of the...

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It has become clear that the world is facing a major inflation crisis in consumer prices, without a collective solution to it, as every country will try to find a way out for it away from the accounts and needs of other countries.

American economic analyst Daniel Moss says in a report published by Bloomberg News Agency that when it comes to the rapid rise in inflation rates in the world today, it is not possible to rely on a decisive move by the two most important economies in the world, namely the United States and China.

Each of the two countries finds itself trapped in the trap of its own policy choices and domestic priorities. Neither country seems ready to move aggressively to stop the price increase.

Wave

For those who still cling to the notion that the current wave of inflation is temporary and in the position of an acceptable respite after years of low inflation, recent economic figures and data say otherwise.

China’s wholesale prices recorded their biggest rise in 26 years last month, and consumer prices rose. At the same time, the US Department of Labor announced that consumer prices rose at the fastest pace since 1990, exceeding economists’ expectations.

For its part, the German government’s economic advisory council called on the European Central Bank to clarify how it will rein in its ultra-flexible monetary policy in light of high inflation rates. The inflation rate in Germany, the largest economy in Europe, is expected to rise above the level targeted by the European Central Bank next year.

interest rates

Doss says that the problem is that the solution that most central banks know to the problem of high inflation, which is to raise interest rates, does not seem this time an appropriate solution in light of the economic repercussions of the emerging Corona virus pandemic. Even the fiercest critics of extended loose monetary policies say that those responsible for monetary policy have a tried-and-true recipe.

And central banks, at least in the United States and Europe, cannot risk accepting rampant inflation levels and the dangers of going back to the bad days of the seventies, when high oil prices pushed consumer prices in those countries to record levels, and that had its economic repercussions. As for the Chinese case.

High inflation rates threaten to waste a large part of the prosperity and economic stability achieved by the economic openness led by former Chinese President Deng Xiaoping in the eighties of the twentieth century.

According to a research paper published by the Reserve Bank of Australia, despite all that is said about the Cold War between Beijing and Washington, the inflation experience in China is following in the footsteps of the Western model.

China fears for economic growth, which has already declined compared to its level in the last quarter of 2019 before the outbreak of the Corona pandemic in the world. What began in China as a record economic recovery this year, is now facing a breaking line.

Chinese growth

Bank of America recently lowered its forecast for China’s economic growth this year from 5.3 to 4% of GDP. Thus, it is possible that China will go against the prevailing logic, easing its monetary policy despite the high rate of inflation, as Prime Minister Li Keqiang warned of the dangers of putting pressure on the economy by tightening monetary policy.

On the other hand, in the US, the US Federal Reserve will find it difficult to tighten monetary policy quickly.

And stresses Jerome Powell, Chairman of the Board that the monetary policy of quantitative easing must be withdrawn before considering an increase in interest rates. Since the withdrawal of the quantitative easing policy will be gradual, it is not expected that any increase in US interest rates will occur before mid-2022. The Fed tends to be slow in withdrawing the economic stimulus programs and the quantitative easing policy to avoid a panic wave among investors in the financial markets, as happened in 2013 .

Flexible Policies

In Europe, European Central Bank President Christine Lagarde is unlikely to heed German criticism of ultra-flexible monetary policy. Since the launch of the single European currency, European Central Bank chiefs have become accustomed to German warnings of ultra-flexible monetary policy.

Although the bank was initially subject to German influence; It is based in Frankfurt, and its first chief economist was German Ottmar Issing, an advocate of tight monetary policy. But these days, the influence of doves who believe in the necessity of adopting flexible monetary policies to promote economic growth is a major objective.

Although high inflation is now a global problem, it is not excluded that the major countries will move to confront it collectively, as happened during the collapse of the global financial markets in 1985 when representatives of the major countries met at the Plaza Hotel in New York and agreed to reset the movement of the currency markets. Today, the domestic conditions of each country do not allow sympathy for other countries affected by high inflation, nor to think about how to help them.

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