Finance and Economics: Can aggressive interest rate hikes reduce global inflation?

(Finance and Economics) Can aggressive interest rate hikes reduce global inflation?

　　China News Service, Beijing, June 17 (Reporter Wang Enbo) Inflationary pressure is triggering a wave of global central bank tightening.

In just a few days, the Federal Reserve launched the largest rate hike in 28 years, followed by the United Kingdom and Switzerland.

But can aggressive rate hikes really lift the inflation alarm?

　　In May, the U.S. consumer price (CPI) rose 8.6% year-on-year, a new high since 1982; the euro zone CPI rose 8.1% year-on-year, a new high since records began in 1997; Turkey, Argentina and other countries increased by more than 50%.

　　The prevailing view is that the current round of global inflation "high fever" can be traced back to the unprecedented stimulus policies of the United States and other Western economies.

　　From the end of February 2020 to the end of March 2022, the total assets of the Fed expanded rapidly from $4.21 trillion to nearly $9 trillion, a cumulative increase of more than double in two years.

Many Western economies have also taken a concerted step to open the gates to "release water".

　　Against this backdrop, Guo Liyan, director of the Comprehensive Situation Research Office of the China Academy of Macroeconomics, said that the United States is facing full-scale inflation brought about by a spiral of wages and inflation.

Policy stimulus has led to significantly overheated demand, coupled with a shortage of domestic workers, and wages in various industries, especially in the service sector, have jumped, which has formed a strong support for inflation.

　　If the loose monetary policy provides sufficient "bullets" for inflation, according to Zhao Zhengyi, director of the International Division of the Price Monitoring Center of the National Development and Reform Commission, trade protectionism is the general root cause of this round of global inflation.

The series of protective measures adopted by the previous US administration have planted the "root of disease" in the global supply chain. "This damage did not appear at the time, and is now gradually germinating."

　　As he said, the damage of protectionism to the global industrial chain and supply chain has been completely exposed under the impact of emergencies such as the epidemic, and liquidity has magnified the contradiction between supply and demand.

The Russian-Ukrainian war, as a sudden factor, further exacerbated the speed and magnitude of inflation.

　　Facing soaring price figures, Western economies such as the United States have to aggressively raise interest rates, but the effect may be limited.

　　Some experts pointed out that in general, global trade protectionism will continue to spread in the next few years, economic growth will be insufficient, constraints will increase, commodity prices will remain high, industrial and supply chains will continue to be restructured in chaos, and the war between Russia and Ukraine will bring high food and energy prices are likely to be more persistent.

It is expected that this round of big inflation will continue for a long time, and the CPI of major economies such as the United States and Europe may drop significantly next year.

　　Especially as trade protectionism continues to spread, the supply chain risk premium is still expanding.

　　As of early March this year, the U.S. government officially promulgated a new regulation to increase the proportion of "American-made" parts and components procured by the federal government from the current 55% to 75%, and to formulate new "price concessions" for key parts and components. policies, including semiconductors, key pharmaceutical ingredients, advanced batteries, and more.

Analysts believe that the core of the policy is to promote the return of manufacturing, with strong protectionism, which is not conducive to promoting market competition, pushing up the cost of US government procurement and inflation.

　　Managing high inflation has become a global challenge.

It is worth noting that, in sharp contrast to the high international inflation, China's price level is generally operating within a reasonable range. In May, the CPI rose by 2.1% year-on-year, significantly lower than other major economies.

　　Guo Liyan believes that in the face of this century's epidemic and extreme weather, China has handed over a qualified answer sheet in terms of ensuring the supply and price of food and basic energy, which is a manifestation of comprehensive governance capabilities.

In particular, a complete set of long-term guarantee mechanisms that compact the entire chain of production, supply, storage, and sales have withstood the test of the epidemic.

　　In addition, China adheres to a prudent monetary policy and resolutely refrains from flooding the country with strong stimulus.

This stable macro policy orientation also makes observers believe that China does not have a comprehensive inflation base, and there is still room for a calm policy.

　　Wang Yuanhong, deputy director of the Economic Forecasting Department of the State Information Center, predicts that China's CPI will moderately heat up in the second half of this year, and the PPI will fluctuate downward.

　　In terms of managing high global inflation, many experts pointed out that what is more important than blindly raising interest rates and tightening monetary policy is that the United States, the initiator, must correct the wrong policy of "harming others and not oneself" as soon as possible and strengthen international cooperation.

　　Among them, the cancellation of tariffs on China is a top priority.

Some studies believe that if the United States cancels the additional tariffs imposed on China, it can reduce the inflation rate by more than 1.3 percentage points and save an average American family by $1,200 per year.

　　In addition, it is necessary to promote Russia-Ukraine peace talks as soon as possible.

Promote the relaxation and end of geopolitical conflicts, lift sanctions on Russia, and promote the restoration of normal order in international commodity markets such as global food and energy.

At the same time, actively cooperate to fight the epidemic.

Help backward countries deal with the epidemic, speed up the repair of the global industrial chain and supply chain, and promote the normal production and supply of commodities.

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