Alpha Beta | Addressing inflation is greater than the ability of central banks

05/08/2022
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It may be rare for experts in the financial and business sectors, as well as economic analysts worldwide, to agree that the monetary policy pursued by central banks in large economies will not be able to address the inflation file. The reasons for this are a mixture of economics. and politics, and perhaps the US Federal Reserve, which is the most reliable institution in America, is a good example of the impression that prevailed on the ability of central banks to deal with inflation, as it was wrongly calculated that this increase in consumer prices temporarily or temporarily, while a few months later he was forced to say It is not temporary, but will remain for a long time, which raises doubts about the credibility of the Bank and its Board of Directors and their ability to play the appropriate role with time and tools to combat inflation in America, the largest world economy, as its rate reached 8.6 percent as the highest rate in four decades.

The world is going through a phase of rising prices that he has not experienced for decades and coincides with the remnants of the repercussions of a major health and economic crisis caused by the Corona virus, which continues as a pandemic is classified. As for the big injection. money in most countries, amounting to about $ 30 billion, which ranged from direct stimulus packages for facilities or individuals, financing and quantitative easing with a reduction in interest rates to near-zero levels, which was reflected in a large increase in the prices of assets and commodities without exception, and what happened is also an extension of the resulting effect.Also about the same policies that were taken in the global financial crisis in 2008. In terms of the supply chains the world is struggling with, it can be seen as an unprecedented crisis that has pushed shipping costs up to levels with which companies have eroded profits despite raising prices. In addition to the aftermath of the Corona pandemic, Ukrainian war that has fueled wheat and grain prices since the beginning of the year to exceed price increases of 37 percent for wheat and 20 percent as an average for grain. The two countries are among the largest exporters of these commodities, accounting for 30 percent of world exports, and prices are likely to remain high for a long time due to this war.

In addition to their impact on rising energy and mineral prices, because Russia is one of the largest producers and exporters of these commodities. Or the Russo-Ukrainian war, as long as these issues are not resolved. The US Federal Reserve has raised interest rates. a few days ago by half a percentage point. This did not surprise the markets, and the economists in America did not see it as a step that was able to stem inflation or that it was seen as a strong brake to reverse its rise. Therefore, after rising After the announcement, the US market indices returned at high rates to decline to wipe out their profits for several reasons, the most important of which is the rapid return to expectations that the US Federal Reserve will have to raise interest rates by three-quarters immediately at the next meeting, after about a month, although Bank President Jerome Powell indicated to increase a quarter point, but estimates were confused The Fed’s board changed its view of inflation at the end of last year, which changes went from a temporary rise to a long-term rise that shook the Fed’s credibility.

But to return to the essence of the causes of high inflation, the other political factors represented by the Russo-Ukrainian war and also related to the need to solve the problem of supply chains and also the abandonment by countries that important in global production like China of their strict measures to confront the Corona virus. Strengthening international trade and economic cooperation to facilitate the movement of trade and investment worldwide and the need to change the policies of some Western countries to increase the production capacity of oil and gas, and to reconsider the proportions of their energy mix, and some of the stimulus policies taken have affected the productivity of those countries, such as supporting families in America with amounts that prevented the owners of those families from returning to work as long as these subsidies are spent, which reduces the workforce and wages increase, as is also the case in some European countries, by interfering with political purposes for electoral purposes in dealing with important economic files.It reduces supply and raises prices.

The big central banks, not in America or Europe, will not be able to handle the inclusion. The solutions are available to the governments of their countries, in addition to the need to address the inflamed political files. Its continuation will widen the scope of their negative impact and make inflation turbulent and difficult to control, and most countries of the world will enter into an inflationary stagnation from which it will not be easy or in a short period of time and can expand. It has widespread chaos in the ongoing war between Moscow and Kiev, leading to a third world war of which the main theater is Europe.

Quoted from Al Jazeera

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