Multi-country inflation hits a record high, can the crisis alert be lifted?

Text/Liu Wenwen

　　In 2021, under the cover of the "black swan" of the epidemic, the global supply chain will be partially blocked, and commodity prices will soar; in response to the impact of the epidemic, many countries have implemented large-scale fiscal stimulus policies, which will intensify inflation and bring global economic recovery. Bring huge uncertainty.

　　Looking forward to 2022, can the inflation warning be lifted?

Steadily climbing, getting stronger and stronger

　　Looking back at 2021, the inflation rate of major economies continued to rise.

Since April 2021, the Fed has consistently characterized high inflation as "temporary", but the rising inflation rate in the following months has proved not to be the case, and the term "temporary" was finally abandoned.

　　The latest data from the U.S. Department of Labor shows that the CPI data of the United States in November 2021 reached or exceeded 5% for seven consecutive months. In November, the CPI rose 6.8% year-on-year, the largest year-on-year increase since June 1982.

The Federal Reserve announced at the last interest rate meeting in 2021 to accelerate the reduction of debt purchases, and the rate of reduction has doubled.

It is not difficult to see that inflation has become a major constraint on the US economy.

　　Similarly, British inflation is also rising.

In June 2021, the UK inflation rate further exceeded the Bank of England’s target, reaching 2.5%, the highest level since August 2018.

In November, the British CPI rose 5.1% year-on-year, reaching a new high in the past ten years.

　　The inflation situation in emerging economies is also not optimistic.

As inflation and nominal interest rates in the United States rise, capital outflows and currency devaluations in high-debt emerging economies intensify, and the risks of debt crises and currency crises will further rise.

　　According to the Turkish Statistics Agency, Turkey's inflation in December 2021 increased by 36.08% year-on-year, far exceeding expectations and the largest year-on-year increase in the past 20 years.

Turkey's December producer price index (PPI) increased by 79.89% year-on-year.

The intractable supply chain crisis

　　Li Haidong, a professor at the Institute of International Relations at the China Foreign Affairs University, said in an interview with China News Service that it is quite difficult to alleviate global inflation while the epidemic has not ended.

As the future international situation will become more turbulent, the difficulties in the flow of various factors in the process of globalization will continue to intensify, affecting consumption, investment, and foreign trade confidence.

　　Li Haidong further analyzed that at present, the global supply chain is in an extremely tight state and is in urgent need of transformation.

Affected by inflation, some countries, such as the United States, have to swing their supply chains to a direction that meets their own needs, but this will destroy and rebuild the global supply chain pattern that has been formed in the past 30 years. "Such a collision of ideas and practices It will be more intense in the future. When the supply chain is difficult to evolve smoothly, inflation will inevitably increase further."

　　Zhang Yuncheng, director of the Institute of World Economics of the China Institute of Modern International Relations, told China News Service that the world economy will be in a deep recession under the epidemic in 2020, and will rebound rapidly in the first and second quarters of 2021, and the supply side will be blocked in the third and fourth quarters. , And fell into "half-incompleteness". The serious imbalance between supply and demand is just the fuse. The fundamental reason is that developed countries have to forcibly change the global traditional supply chain structure.

　　"Therefore, in the short term, the contradiction between supply and demand will be resolved as the congestion of US ports is eased, and inflation will ease. However, it must be noted that the logic of globalization is forcibly changed and structural changes are triggered. This is the most deadly." Zhang Yuncheng said.

Will inflation rise again?

　　Given the continuing challenges on the supply side, how will global inflation behave in 2022?

　　The Wells Fargo Investment Research Institute stated in its 2022 Outlook report, “Although the supply chain and related inflation headwinds may continue into the first half of 2022, we expect them to ease after the middle of the year. We expect inflation in 2022 to be higher. The current level has slowed down, but it will still be higher than the recent historical normal level."

　　According to Goldman Sachs, there is no short-term solution to solve the supply chain and input cost problems that plague many industries.

However, the management has used price increases, cost control and technology to maintain profits, and many unfavorable factors will be alleviated in 2022.

But the labor market will remain tight and will drive wage inflation.

　　Goldman Sachs economists predict that the annualized growth rate of US GDP will fall from 4.5% in the first quarter of 2022 to 1.8% in the fourth quarter.

At the same time, the core PCE inflation rate will fall from 4.3% in the first quarter to 2.4% at the end of the year.

　　Nevertheless, there are still many economists who are concerned about inflation in 2022.

Guan Tao, chief economist of Bank of China Securities, said that facts have proved that the inflation risk has been "underestimated" by everyone. In the medium and long term, I am afraid that the global inflation center will rise to a higher level in the future.

　　He analyzed that, first of all, currency oversupply has given birth to greater inflationary forces, and the degree of currency oversupply has been accumulated over the past ten years.

If the asset market cannot fully absorb this liquidity, and if liquidity enters the real economy, inflationary pressures cannot be underestimated.

　　Second, the “scarring effect” brought about by the epidemic has caused people to rethink the relationship between work and life, reduce labor participation, and cause some permanent unemployment. This labor shortage may form lasting support for inflation.

　　Deutsche Bank’s forecast is also not optimistic, pointing out that the range of inflation has expanded and it will take longer to eliminate.

Rising basic inflation, high inflation expectations, and accelerating wage increases will all support inflation above the target in 2022.

With the restoration of the supply chain, the return of labor supply and the fact that commodity prices are still below the peak, inflation should fall back to near the target level before 2024.

　　In Zhang Yuncheng's view, in the face of inflation, the performance of various economies is divided.

From a global perspective, the impact of inflation on different economies can be simply described as "gray rhino" and "black swan."

For developed countries, such as the United States, which is undergoing quantitative easing, reducing the scale of debt purchases, and further moving toward raising interest rates, this is a visible "gray rhino."

　　He continued to analyze that for emerging market countries, inflation is clearly a "black swan" that continues to sharpen.

As a global credit currency, once the US dollar raises interest rates, it will bring about a revaluation of global asset prices, leading to tight liquidity in the global US dollar. The recovery based on the previous large-scale release may collapse.

Emerging economies that are already facing debt and balance of payments difficulties will face greater risks when they encounter a huge global monetary policy shift.