Faced with rising inflationary pressures, some Western countries cannot sit still.
In just a few days, the Federal Reserve launched the largest rate hike in 28 years, followed by the United Kingdom and Switzerland. A wave of global central bank tightening is imminent.
But can a rate hike really lift the inflation alarm?
Protectionism and "big water release" create this round of inflation
Right now, global inflation is intensifying.
In May, the US 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%.
Frozen three feet is not a day's cold, what is the reason for the "high fever" of global inflation?
Guo Liyan, director of the Comprehensive Situation Research Office of the China Academy of Macroeconomics, pointed out that the origin of this round of global inflation can be traced back to the unprecedented stimulus policies of the US and Western economies.
Turning the calendar back to the beginning of the epidemic, in response to the shock, the Federal Reserve cut interest rates to zero in an emergency, and launched an "unlimited" quantitative easing policy, which was described by the outside world as "spraying money by helicopter."
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 floodgates.
Guo Liyan believes that in this context, the United States is facing full-scale inflation brought about by the spiral of wages and inflation. It can be observed that the policy stimulus has caused its demand to be significantly overheated, coupled with the shortage of domestic workers in the United States, and the jump in wages in various industries, especially the service industry, has formed a strong support for inflation.
The data also confirms this trend. In May, U.S. consumer durables such as energy (up 34.6% year-on-year), food (up 10.1% year-on-year), clothing (up 5% year-on-year), motor vehicles (up 12.6% year-on-year), air tickets (up 37.8% year-on-year), transportation (up 7.9% year-on-year) and other services prices have risen sharply across the board; core inflation excluding food and energy has risen by more than 6% year-on-year for two consecutive months.
If loose monetary policy provides sufficient "bullets" for inflation, then trade protectionism is the general root cause of this round of global inflation.
Zhao Gonggong, director of the International Division of the Price Monitoring Center of the National Development and Reform Commission, believes that a series of protective measures taken by the U.S. government since the last administration have planted the “root of disease” in the global supply chain.
Expert analysis believes that the United States pursues trade protectionism, vigorously promotes the restructuring of industrial and supply chains regardless of cost, and tries to find other countries as "scapegoats" for shifting domestic conflicts, making the economy give way to political correctness, which is manifested as cost-driven price increases. , and this cost growth is sticky, difficult to eliminate and gradually accumulated, and finally broke out.
Today, protectionism's damage 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.
Interest rate hike is difficult to solve the "root cause" of high global inflation
As the "inflation temporary theory" and "inflation peak theory" are both shattered, the United States and other Western economies have to aggressively raise interest rates, but this move may be difficult to solve the "root cause" of global inflation.
Guo Liyan pointed out that the previous monetary easing policy of the United States has greatly loosened the tolerance for inflation, which is an irresponsible performance.
On the one hand, the American people directly bear the cost of rising prices, and domestic prices of food and energy have risen significantly. On the other hand, the United States has serious export inflation, especially emerging economies after the impact of the epidemic, the recovery level is not as good as that of developed economies, and their resistance to food, energy and other supply shortage crises is weak, and now some countries have fallen into double-digit viciousness in expansion.
"Price is the result of the balance of all aspects of the macro economy," Guo Liyan said. Under the current background, the United States and major economies have not been able to stop this round of global inflation by raising interest rates and shrinking their balance sheets, but will instead aggravate the internal pressures of some emerging economies. the urgency of the debt crisis. Since the United States began to raise interest rates, some emerging economies have seen capital outflows.
Another analysis pointed out that, in general, global trade protectionism will continue to spread in the next few years, economic growth will be insufficient, restrictive factors will increase, commodity prices will remain high, the industrial chain and supply chain will continue to be restructured in chaos, and the Russian-Ukrainian war will bring Incoming high food and energy prices may 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.
It is especially worthy of vigilance that as trade protectionism continues to spread, the supply chain risk premium is still expanding.
For example, in early March this year, the U.S. government officially promulgated a new regulation to increase the proportion of "American-made" parts and components purchased 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.
The United States must correct the policy of "harming others without benefiting itself"
Faced with the thorny challenge of high inflation, the world is looking for a cure for governance.
In stark contrast to 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 of food and basic energy and stabilizing prices, and the results of comprehensive price control have emerged.
Some time ago, cities in densely populated areas such as the Yangtze River Delta were hit by the supply chain of people's livelihood commodities, and the pressure and challenges were not small. China made a lot of efforts to keep food prices in May's CPI from positive to negative month-on-month. This is due to the compaction mechanism of "rice bags" and "vegetable baskets" in various places, especially the rapid start of emergency protection mechanisms for epidemics and major adverse weather, as far as possible cross-regional transportation, production and sales connection, supply and demand promotion, to ensure that the "last mile" is delivered to the retail segment.
In addition, China's more stable and responsible macro policies compared with Western economies are also regarded as the basic conditions and major guarantees for stabilizing prices. Adhering to a prudent monetary policy, scientifically grasping the rhythm and focus of policy efforts, and resolutely refraining from flooding the country with strong stimulus, make observers believe that China does not have the basis for comprehensive inflation and that there is still room for 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 a 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.
