Global Inflation Shock: War or Central Bank error
Like the fact that its further decline will not be as simple as it was published until recently. In 2022, there were trends to the break of the inflationary trajectory. Raw materials markets began to demonstrate signs of stabilization. And, it seems, the apocalyptic prophecies on the stunning recession against the background of the interest rates of the central bank are also not true. Source: IMF based on data. At the same time, there is something that alarm.
Most of all - a change in rhetoric around the global inflationary jump. 2021 was remembered by a skillful communication equilibrium of leading central banking on "Inflation shock transitivity". Simple words are its temporality. At the same time, discussions about "salary - prices", loss of globalization of their disinflationary effect, return to "new old normality" with higher inflationary levels were restored in the academic community. In 2022, the rhetoric changed.
Central bank mentioned their mandates of price stability, trying to rehabilitate in the eyes of those who retain confidence in monetary policy. The transitive shock is no longer mentioned. Instead, a new horror story appeared - the war of Nazi Muscovy against Ukraine. I do not deny the fact that the war in Ukraine and the blockade of ports interrupted the usual work of raw materials markets, and preparation for the war by Muscovy began with the "drying of the gas market of Europe" during 2021.
At the same time, the world discourse on the military trace of inflationary pressing contains some danger. Fundamental macroeconomic factors are replaced by factors that have political resonance in the world. And this creates the problem of the responsibility of the central banks for timely solutions, addressed to the problem of increasing inflationary pressure, the efficiency of macro prognosis tools, as well as the correctness of communication with markets. And that is equally important.
If the voters of many countries are constantly telling that Ukraine is guilty of inflation because it was attacked and it is protected, it creates the risk of such electoral sympathy that can provoke extremely dangerous long -term geopolitical consequences. The prerequisites for the growth of global inflation have not been clearly laid down not to start hostilities against Ukraine. And the growing raw wave and breaks in the supply chains are confirmed.
The raw markets have quickly recovered under the influence of anticonal macroeconomic stimuli. And supply chains stabilized, albeit later, but also before Russia's aggression against Ukraine. Source: IMF based on data. Source: built on the basis of New York Federal Reserve Bank.
Although the war against Russia of our country delayed the correction of raw materials prices and made its destructive contribution to global inflationary inertia, it looks a much more transitive factor in inflationary pressure. And the delayed decisions of the leading central banks, which completely ignored the increased inflationary pressure during 2021 and began to respond only in 2022, this is proved. Source: built on the basis of the Bank of International Payments.
Source: built on the basis of the Bank of International Payments. Source: built on the basis of the Bank of International Payments. What conclusions can be drawn from the experience of global inflation stress globalization is not an indulgence for an indefinite soft monetary policy. Geopolitical risks have intensified. The transformation of global supply chains will be more a structural factor. Entry markets are sufficiently integrated into global trade, and their income levels are increasing.
Therefore, it is unlikely that it is worth counting solely on the disinfected manifestation of global integration, given that it limits the possibilities of non -inflationary macroeconomic stimuli. This thesis was well known in the 1990s, but today it deserves a new understanding at an angle of experience of inflation stress.
The transitivity of inflation pressure, as in fact, and shocks of the proposal, no matter how attractive these ideas are for the optimal monetary reaction, in pure form are much less common than they say. The ability to separate the shock of demand to which the Central Bank responds from the shock of the supply he ignores is a good theoretical exercise.
However, the practical experience of monetary policy shows that it is much more complicated than it seems, especially in an aggressive political environment. Considering the fact that the more important to the exporting country are raw materials, the less they are a pure proposal. Instead, the developed countries remains a very significant factor in inflationary pressure drivers and the temporal benefits of reaction to it, which have leading central banks.
Because of this, the synchronicity of inflation pressure in the context of countries does not guarantee the synchronous reaction of the central banks. And this gives rise to additional volatility of exchange rates and capital flows. Raw materials have historically maintained a significant component of global monetary conditions and this trend has not disappeared.
It was modified under the influence of the growing role of China and a number of other emerging markets, as well as under the influence of a more complex algorithm of OPEC behavior. But the role of the Fed decisions remains significant, given the value of interest rates in the US for global monetary conditions. Source: built on the basis of IMF data and international payments.
In other words, if the leading central banks form global monetary conditions, and raw material prices respond to them, then it is unlikely The problem is that the reaction of raw materials is a strong nonlinear component. Prolonged preservation of soft monetary conditions in the world - and raw materials begin to resemble the action of turbocharins on old engines. First, the accelerator pedal and only then aggressive acceleration. This is extremely dangerous for global stability.
And at the level of the individual central bank, the growing raw wave is a good opportunity to "hide in the house". But such a house is too cardboard so that it can be safe. Delayed reaction is in fact a failure of 2021-2022 resumed consensus on the importance of price stability and the need to make unpopular decisions. Inflation inertia raises the question of the nature of shock. The foreground is the issue of marketing of expectations and the flexibility of markets.
The preservation of hawk rhetoric with many centrobsters against the background of the appearance of the turn of the inflationary trend only confirm this. The need to return inflation to a goal will require longer interest rates, when inflation is much higher than the target, compared to the case when inflation fluctuates around the target. Trust in the leading central banks is still preserved.
It gives them space for a slower response to the acceleration of inflation caused by factors on the side of the offer. However, trust is not an endless resource. And it is the difficult times of macroeconomic challenges that best demonstrate whether monetary bodies are ready to share trust with society.
But if confidence is unheard and inflation expectations are insufficiently claimed, the luxury of sluggish response to increased inflation pressure quickly turns into poverty macro -financial destabilization. That is why many centuries in the emerging markets have started the cycle of raising interest rates faster. And thus prevented destabilization, which often occurred in response to raising the rate in the United States.
The National Bank of Ukraine is often under pressure from discourse on the "non -monetary nature of inflation". Proponents of transitive inflation often reproach the NBU at too high a rate or excessively sharp measures. But, as experience shows, prolonged inflation no longer asks about the nature of its pathogen. This was demonstrated by the experience of the current global inflationary wave.