Cur­ren­cies Not Help­ing as Many Coun­tries Stare at In­fla­tion Tests

The Economic Times - - Commodities Plus -

Ross Fin­ley

Lon­don: With the world econ­omy en­ter­ing a more un­cer­tain phase and the top cen­tral banks sound­ing ever more cau­tious, at­ten­tion may turn in the com­ing week to signs of whether years of ag­gres­sive stim­u­lus have yielded any sig­nif­i­cant rise in in­fla­tion.

The US Federal Re­serve, the Bank of Eng­land and the Euro­pean Cen­tral Bank all have been dis­ap­pointed to vary­ing de­grees about how lit­tle in­fla­tion has picked up, or in­deed how it has spent too much time go­ing the op­po­site way. The Bank of Ja­pan, which has been try­ing to ward off de­fla­tion go­ing on two decades, has been hit with a coun­ter­pro­duc­tive surge in the yen af­ter a con­tested de­ci­sion last month to adopt a ti- ny neg­a­tive in­ter­est rate.

Even in China, where it is dif­fi­cult to fathom the sheer mag­ni­tude of fis­cal and mone­tary stim­u­lus Bei­jing has piled on since the fi­nan­cial crisis, con­sumer price in­fla­tion is re­mark­ably tame and likely to re­main so.

For de­vel­oped economies, the worry is whether a slow­down in growth over the past sev­eral months will get in the way of what many cen­tral banks are hop­ing for: pres­sure on in­fla­tion through wages as labour in­creas­ingly be­comes more scarce.

Al­ready there are signs the dra­matic fall in un­em­ploy­ment in the US and Bri­tain, and to a lesser ex­tent the euro zone, is start­ing to slow, which is nor­mal this far into an eco­nomic ex­pan­sion, al­beit an un­even and lack­lus­tre one.

“The US mer­its spe­cial at­ten­tion,” writes David Hens­ley, a di­rec­tor of global re­search at JP Mor­gan. “If the US un­em­ploy­ment rate were to sta­bilise at 5%, the Fed would have much less in­cen­tive to hike rates un­less this level of un­em­ploy­ment turns out to be low enough to gen­er­ate a sus­tained rise in wage and price in­fla­tion, some­thing Chair Yellen has ex­pressed con­sid­er­able scep­ti­cism about.” — Reuters


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