Monday, October 25, 2021

Stagflation risk: Stephen Roach latest economist to sound the alarm over 70s-style inflation

Stephen Roach is the latest high-profile economist to sound the alarm at the risk of a 1970s-style impasse – where economic growth falls but inflation remains very high.

The former president of Morgan Stanley Asia told CNBC in an interview on September 29 that the rise in energy prices is causing major damage to struggling supply chains and believes the United States is “from the stalemate battles of the ’70s”. A supply chain mess” away. .

His remarks came as gasoline stations in Britain were drying up, rising electricity costs in the EU before winter, and rising oil, natural gas and coal prices.

In interviews, Roach spoke of easing supply chain constraints rather than shifting from one part of the supply chain to another, a situation he described as “reminiscent of what we saw in the early 1970s. And one “suggests that inflation will remain at these higher levels for longer than we thought.”

“We were kind of a supply chain mess away from stagflation,” Roach said, adding, “Unfortunately, it seems to be playing out.

Roach took aim at the Fed’s easy money policies, arguing that they were excessive, especially in the face of persistent inflationary pressures.

While Fed officials have maintained that the current bout of inflation is temporary and will end once the supply chain disorganization ends, they have increasingly begun to recognize that inflation has been more sticky than before.

“This is not a situation we have faced for a very long time and it is a situation in which there is tension between our two objectives. …inflation is high and well above target and yet the labor market appears sluggish,” Federal Reserve Chairman Jerome Powell said at the European Central Bank Forum, his remarks pointing to the dynamics of an impasse.

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Price rises have been a major theme amid economic recovery, rising faster than wages, and reducing Americans’ purchasing power.

Core personal consumption expenditure (PCE) inflation, which excludes volatile categories of food and fuel and is the Fed’s preferred gauge for price growth, has risen well above the central bank’s 2 percent target in recent months.

In April this year, the core PCE was 3.1 per cent, rising to 3.5 per cent by May and 3.6 per cent in June and July, according to the latest data available from the Commerce Department.

While Fed officials have expressed concern about price pressures, they predict that higher rates of inflation are a transient phenomenon. Nevertheless, they acknowledge that there is a risk that price pressure will be more viscous than previously thought.

New York Federal Reserve Bank President John Williams said on Monday that consumer expectations about what the inflation rate will be down the road remain “well anchored” around the Fed’s 2 percent objective, though he said the upside There are risks and a deal of “great uncertainty” around the inflation outlook.

Economist Nouriel Roubini, best known for his gloomy-yet-accurate forecast of the 2008 financial crash – a prediction he made at a time of peak market euphoria – warned in a recent op-ed that global The supply chain crisis combined with high debt ratios and hyper-lax monetary and fiscal policies threaten to turn the “mild stagflation” of recent months into a full-blown stagflation crisis.

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Tom Ozimek has an extensive background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s heard from Roy Peter Clark: ‘Hit your goal’ and ‘Leave the best for last.’

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This News Originally From – The Epoch Times

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